Hong Kong company reporting season

Sinopec Oilfield Service expects to swing back to profit next year

PUBLISHED : Wednesday, 30 August, 2017, 4:27pm
UPDATED : Wednesday, 30 August, 2017, 4:27pm

Sinopec Oilfield Service, the drilling and engineering services supplier of sister firm China Petroleum & Chemical (Sinopec), has vowed to return to profit after posting its third interim loss.

The company said it aims to swing back into the black by taking up more work from Sinopec and overseas clients, adding that it expects the slow oil price recovery to continue.

The state-backed company, is also confident of reaching its goal to slash 580 million yuan (US$88.03 million) of costs in the second half of the year after cutting 750 million yuan in the first six months partly by staff reductions.

“We must substantially pare our loss this year, turn in a profit next year and continue healthy development in 2019,” chief executive Sun Qingde told reporters on Wednesday.

Sinopec Oilfield Service shares in Hong Kong rose 3.8 per cent to HK$1.38 on Wednesday, outperforming the Hang Seng Index’s 1.2 per cent rise.

To reach the goal, the firm plans to cut 2,200 jobs in the six months through December after slashing its payroll by 3,400 in the first half to 88,700.

The company on Tuesday posted a first half net loss of 2.13 billion yuan, less than half the 4.44 billion yuan loss recorded a year earlier.

Revenue grew 6.2 per cent year on year to 19.8 billion yuan, due mainly to a 27.7 per cent rebound in drilling services revenue.

Drilling work volume jumped 54 per cent year on year, indicating that the company had to lower fees, as oil and gas producers continued to squeeze their suppliers amid lingering softness in oil prices.

As a result, Sinopec Oilfield’s drilling services division recorded a 1.3 per cent gross loss margin, although much narrowed from a loss margin of 19.4 per cent in the same period a year earlier.

Sinopec accounted for 54 per cent of its total first half revenue.

Drilling rig utilisation rose to 65 per cent in the first half from 55 per cent a year earlier.

Sun expects all five business units, which also include geophysical data collection, well properties data collection, output enhancing well intervention and engineering and construction, to see work volume growth in the second half compared to the first half.

Sinopec will maintain oil and gas exploration and production spending at around 50 billion yuan annually through 2020, according to Sinopec Oilfeld chairman Jiao Fangzheng.

A big portion of the outlay will be spent on natural gas projects. Sinopec aims to have 40 billion cubic metres of annual gas output capacity by 2020. Output amounted to 21.7 bcm last year.

Sinopec has set aside an additional budget for building three long distance gas pipelines and a major gas storage facility by 2020, which Sinopec Oilfield can tap, he added.

“These projects will give Sinopec Oilfeld a very solid foundation for growth in the next three years,” he said.

Jiao said he expects crude oil prices to rise to US$60 a barrel next year.

Meanwhile, Sinopec Oilfield aims to source half its revenue from overseas in 2020, up from 31 per cent in the first half of this year, Jiao said.

The Middle East, especially Saudi Arabia and Kuwait will remain its key markets, although it has exited Argentina and Venezuela owing to heightened political and economic risks.

The company was recently awarded a US$190 million gas pipeline laying job in Thailand, he added.