China Oilfield Services Ltd

SSE:601808

Q1-2025 Earnings Call

[Unknown Executive]

Good afternoon, investors and analysts. Thank you for joining us today for the China Oilfield Services Limited First Quarter 2025 Earnings Conference Call. COSL is one of the world's largest oilfield service providers. Its services cover all stages of oil and gas exploration, development and production and are categorized into four main types: geophysical acquisition and surveying services, drilling services, well services and marine support services.

At the same time, the company fully utilizes its advantages in integration capabilities to provide customers with integrated services throughout the life cycle of oilfields. The company has always been closely tracking the changing trends of the international oil and gas market, firmly grasping the strategic leading position of scientific and technological innovation, constantly refining cost control initiatives, striving to facilitate the domestic and international dual circulation, neutral promotion and committing itself to the gradual transformation of high-quality equipment and technological capabilities into a high-quality market position in order to strive to return to all shareholders and all sectors of society with new development results.

[Unknown Executive]

[Interpreted] Management in attendance today is Mr. Qie Ji, Chief Financial Officer. Today's presentation is divided into two parts. First, Mr. Qie Ji, CFO of the company, will guide you through the company's performance in the first quarter of 2025, after which we will open the floor for Q&A.

Now let me hand over the time to CFO, Mr. Qie Ji.

[Ji Qie, executive]

[Foreign Language]

[Unknown Executive]

Thank you, management, for the presentation. We will now proceed to Q&A session. [Operator Instructions]

Please note that we will provide consecutive interpretation during the Q&A session. Please allow some time for interpretation after you have asked your questions.

Operator, please connect the first investor. Thank you.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] First of all, congratulations on your very good results in the first quarter. I have two questions. The first question is in relation to your Well Services. Well, I realize that for your Well Services, actually there was very good year-on-year growth in the first quarter. And I would like to know what is the growth rate in terms of your revenue? And also what about your outlook in relation to gross profit and also your achievement in gross profit?

My second question is related to your Drilling Services segment. In the first quarter, I realized that there is quite a big increase and fast increase in terms of your number of days of operations. So what are the reasons behind that?

[Ji Qie, executive]

[Interpreted] Let me first take your question regarding the Well Services segment. Some time ago, when we had communications with investors in relation to the annual results and annual report for 2024 and also Q1 2025 outlook, we made the explanation already. Now I'm going to repeat similar points in order to answer your question. So first of all, in relation to the Well Services segment, the contribution of this segment in terms of revenue and profit is very important. And in fact, this trend started in the second half 2023. It continued in the full year of 2024, and it then continued in the first quarter 2025. So right now, when you look at the full year 2025 investment arrangements of CNOOC, basically we can see that we are going to more or less follow the same pattern in our projections.

So now let me comment on your question. First of all, regarding the revenue of the Well Services segment in the first quarter, on a year-on-year basis, there is a slight increase. In terms of profit, on a year-on-year basis, there is a slight decrease. There are several reasons behind such trends and patterns. First of all, in terms of workload, there is no problem at all. There is increase in workload.

Secondly, when it comes to first quarter last year in terms of sales, we were rather -- we did rather a good job. We were rather advanced in terms of sales in Q1 last year. And if you look at Q1 this year on a year-on-year basis, when you look at sales, profit and revenue contribution, we are actually lagging behind the same period of last year. This is because of normal business arrangements.

In this current period, we are going to reinforce and enhance our work in terms of sales of products in scale of the sales, scope of sales across categories and profitability. All these dimensions are very important to us.

The third reason why there was such a trend and pattern is that in terms of equipment, there were some additional expenses. However, these additional expenses will be compensated for by means of insurance later in the period. So this year, we're of the view that our gross profit will be on a high level, more or less the same as last year. Thank you.

Now let me comment on the Drilling Services segment. Basically, in the first quarter, it is quite in line with our expectations. First of all, if you look at workloads, while altogether there were 4,890 days. So on a year-on-year basis, it was up 11% or around 500 days. Well, there are two main factors making contribution. First of all, there was contribution from Mainland China. In terms of workloads, it is rather tight. And in fact, there was new equipment input, so which had actually boosted the contribution from domestic market.

Secondly, there is also a contribution from Norway. And from Norway, there is a boost for growth contribution on a year-on-year basis by around 100 days. So these are two positive factors acting together. Even though there was a slight impact or a decline in Saudi Arabia, however, such problem or such impact was offset by the positive contribution from Norway. In terms of daily rate, because of the semi-submersible rigs in Norway, which was the result of customer's decision to make replacement, so this is again a positive and favorable factor. So with these two factors in force, our Drilling Services segment saw a very positive growth trend in terms of profitability.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] I have two questions. First of all, the first question is about utilization of your production capacity. So the utilization of capacity was high. Last time when we saw such a high level of capacity utilization was in 2014. Now in the first quarter, we can see that it is -- even though it is a slow season, so your capacity utilization was so remarkable. So if you look towards the remaining quarters in 2025, what do you think will be the outlook in terms of your workload and capacity utilization? Are you going to reach full utilization of capacity as in what we saw in the previous periods that I mentioned just now?

The second question is related to your cash management. Well, we can see that you have been lowering or reducing your debts and liabilities. And in Q1, we saw a decrease in interest expenses. In the future, to what level do you want to see your finance cost decrease to in order for you to consider some other ways of using your cash, for example, by means of increasing shareholders' return?

[Ji Qie, executive]

[Interpreted] So first of all, let me comment on our capacity utilization. In the first quarter, our capacity was at a high level, so a relatively high level in recent years indeed. Overall speaking, I think this is a result of a number of factors: first of all, because of the positive situation in Norway; at the same time, the suspension of operations in Saudi Arabia also was one of the factors; and at the same time, there was relatively good progress in terms of the work interface in Mainland China. So this is a good progress on a year-on-year basis. Well, last year, there were some issues in relation to the use of the sea or the ocean. But then this year, we no longer have seen this issue anymore.

Then if we turn to our Drilling segment, we believe that for a short period of time, for shorter term, there would be some normal or regular replacement and revamp of equipment and also some repair operations as well. But then basically, the plan will be of a high level in this regard. In this segment, the biggest variable or the biggest influencing factor will be the weather. For instance, in Q4 last year, there were some weather impacts. But so we believe that it is going to stay at a high level.

And then, if you turn to our Marine Support Services segment, we believe that we are going to see a high level for the geophysical acquisition and Surveying Services segment. We believe that we are trying to identify and find some overseas contracts. And for Mainland China, the South China Sea, we envisage that the workload is going to increase. So all-in-all, speaking, we believe that there would be a normal operation in terms of our capacity.

Now let me comment on our interest expenses. In the first quarter, on a year-on-year basis, interest expenses increased by CNY 70 million. That is because last year, we took the opportunity to repay some external debt. And in Q1 this year, this is the reason why our profit growth is better than our revenue growth. In terms of our interest expenses for the whole year, we believe that we will continue to achieve savings. But then this amount of savings will evolve gradually in the 1-year period, that is to say, it is not going to be equal to the amount now, multiplied by 4.

Now then, I will talk about your question in relation to offering better shareholder return. Well, on this point, we have to look at the situation this year in relation to our repayment of debt and also the arrangement concerning refinancing. Well, after making arrangements in relation to debt structure, then we would then take into consideration our cash position, our operations, the changes in our CapEx, especially in relation to our technology segment. So after considering all these, we will then decide on what plans or what arrangement to make in relation to shareholders return.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] I have two questions to ask. In the past 1 month, there were a lot of shocks and volatility in the international scene. So there was huge fluctuations in international oil price. Besides, there was the increase or the imposition of tariff by the U.S., and all these have added to the uncertainty internationally. We have seen a decline of oil price from USD 75 to USD 60. So what will be the impact on your company's operations?

Then my second question is in relation to Mexico. So last year, there was the additional payment of tax in relation to Mexico and also there was the sale of assets by CNOOC as well. So what do you think will be the impact or possible risk arising from the operations in relation to Mexico?

[Unknown Executive]

[Interpreted] First of all, to answer your question concerning oil price, it is true that there were huge fluctuations in oil price and also in tariff policies. Recently, we have seen the decline of oil price down to USD 60. But then, because of the news of production decrease recently, the oil price has risen back to USD 70 in the current period. So overall speaking, our company's production and operations has been normal. So we have not been impacted by such fluctuations in oil price and tariffs.

Our company will very closely monitor the changes both internally and externally. And then, in turn, we will make adjustments to our operations strategy in order to defend or to combat the pressure on our company from tariffs or oil price.

Our company is a oilfield services supplier globally. So in other words, when there are different types of risks globally, we have to face up to all such risks. This is very fundamental concerning the future growth of our company.

I think what we have to do is to do a good job ourselves. So we need to seize our core in relation to having our operations led and driven by technology. So we have to continue to work on this path in a very steadfast manner.

And secondly, what we have to achieve is to lower costs and improve efficiency, efficiency in terms of utilization of our manpower, efficiency in terms of utilization of the equipment. So then with such enhancement, in terms of efficiency, we'll be able to continue to achieve improvements in our operations.

And then, the next thing we need to do is to address the issues from an external point of view. So first of all, we have to very prudently manage our customers. For those customers who are too easily affected by geopolitical impacts, we have to be very prudent in our consideration.

And secondly, we believe that we should go for those companies or customers that are larger in scale, those with stronger strength, at the same time, those that are large state-owned enterprises. Those are our main focuses in terms of customers to cooperate with. So we will attach more importance to the signing of long-cycle contracts in order to face up to all these external volatilities and fluctuations.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] I have two questions to ask. The first question is in relation to your profit tax. So looking at your profit tax expense divided by your profit before tax, it is 17% this year. However, last year it was 25% to 30%. So I would like to know whether this decrease is a short-term phenomenon or that this year you are going to see the same decrease as well. And then concerning the decline in your R&D expenses, is this a temporary or a short-term issue? Or for this year -- full year, are you going to see a similar decline in your R&D expenses as well?

The second question is in relation to the plan of the parent company to increase shareholding. So some time ago, there was the saying about parent company increasing shareholding with RMB 300 million to RMB 500 million. So what is the progress so far of such increase in shareholding plan? Besides, I understand that the parent company's holdings of Hong Kong shares is relatively small in percentage. So for this increase in shareholding, is it going to be done at the same time for both H shares or A shares at the same time? Or is it only going to be with H shares?

[Ji Qie, executive]

[Interpreted] Let me first comment on profit tax. Actually, I am also rather concerned about whether this trend of profit tax over -- of profit before tax ratio can sustain. And so far, if you look at the tax rate, there has not been significant or material change. As I said earlier, this year in terms of our net profit and total profit, its growth is better than our revenue growth. One factor is because of the decrease in interest expenses. So we're making a good contribution.

Another factor that has made good contribution to our profit is Norway. Norway has made positive contribution. Because actually, last year, Q1, Norway still made a loss. However, this year, the loss has been reduced. It has actually approached breakeven. So this is a very favorable contribution from Norway to our overall profitability.

So when it comes to the big growth year-on-year, well, we believe that the contribution from interest expenses as well as from Norway is going to be normal. So this practice will continue to make contribution to our full year results. However, there would be a change in fluctuations in different quarters. In Q1, our net profit was relatively better, but there is some timing issue here. So that, in other words, there are some differences in terms of the time period and timing, and such differences may not continue or may not happen equally for the whole year. So I would like to remind investors to keep a normal or regular expectations in relation to our result estimates.

Regarding R&D expenses, in Q1, it was more or less flat. It remains more or less the same. For the whole year, we believe that there is going to be a slight increase year-on-year. So this is only a basic fundamental.

Then concerning the increase in shareholding, well, it is true that the parent company had mentioned the amount of CNY 300 million to CNY 500 million. Within 1 year period, there would be an increase in shareholding for each shares and for A shares and H shares. There was that announcement being made. However, when we indeed reach the level where disclosure is required, then we will make disclosure as required accordingly. Whether or not it would be with A shares or H shares, that is up to our majority shareholder to decide.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] I have a question concerning Norway. So first of all, if we look at the utilization and operation in Q1, workload has been quite full. In terms of number of working days, I would like to know when actually work started. In Q2 and Q3, what will you envisage is the number of working days? Is it going to increase? And then there is a vessel from the U.K. to Norway. When will it start to work? What about the work in Brazil? When will that contract start? What will be the overall time schedule for work?

[Ji Qie, executive]

[Interpreted] In relation to the operations in Norway, in the first quarter there are altogether four semi-submersible rigs, apart from one which has actually gone through an inspection and revamp or workover spending the new year. That was an impact by 15 days. Apart from that for the remaining three rigs, in the first quarter, they are all in working conditions. And for the whole year to a different extent, these rates may go through BOP or AOC, repair and workover work. So that would -- these would be short term in nature.

When it comes to the operations in Brazil, the vessel Nanpa had already reached Brazil. And well, it has to go through some premarine operation, preparation test and inspections and so on and so forth. But the overall situation is within our control.

[Operator]

[Foreign Language]

[Unknown Analyst]

[Interpreted] My question is that in the first quarter, the utilization of rigs has increased. What is the trend of the daily rate, where actually for different -- for example, for domestic as well as for overseas, we have seen new highs in relation to daily rates. What do you think will be the future outlook of the rates?

[Ji Qie, executive]

[Interpreted] So if we look at the daily rate related to oilfield services, in the first quarter, basically there is a slight increase. If you look at overall fluctuations in daily rates, well, they are actually affected by the type of vessels and also the region or the location of the vessel's operations, as we explained earlier when we communicated with investors last time.

This year, when it comes to daily rates, we believe that there is a positive trend amidst stability. Basically, the best contribution is from semisubmersible rigs overseas. So they have achieved rather significant growth. Just now you mentioned that in terms of the global daily rates, they are also high. Well, basically, there is some timing difference here. If you look at Southeast Asia, there is a small decline really.

I can give you an example. For example, when it comes to ultra deepwater, comparing the end of February and the end of March, there is a decline by around USD 160,000 from USD 635,000 down to USD 478,000. So there is a small decline in deepwater and also the jack-up rigs. If you turn to Middle East, it is more or less the same as the previous period. For North Europe, again, it's rather flat. It is only in Southeast Asia and in ultra deepwater that there was a bigger decline.

When it comes to our company's drilling vessels, while they are all covered by contracts, so the first thing is for us to implement and execute the contracts well. At the same time, we also need to find and identify some possible potential contract renewal targets of potential possibilities.

[Unknown Executive]

[Interpreted] Thank you for your questions and the management's detailed answers, and thank you for your attention and support for China Oilfield Services Company. Due to time constraints, this earnings conference call is coming to an end. If you still have further questions, please feel free to contact the company any time.

So our meeting will be concluded here. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]