China Oilfield Services Ltd

SSE:601808

Q2-2025 Earnings Call

[Operator]

[Interpreted] Good morning, investors and analysts. Welcome to the 2025 interim results announcement of China Oilfield Services Limited. On behalf of the company, I would like to express our gratitude to all attendees. First, please allow me to introduce the Board members and management representatives attending this meeting. They are Mr. Zhao Shunqiang, Chairman and CEO; Mr. Larry Kwok, Independent Non-Executive Director; Mr. Sun Weizhou, Vice President and Board Secretary; Mr. Qie Ji, CFO.

China Oilfield Services Limited is one of the world's largest oilfield service providers. Its services span all stages of oil and gas exploration, development and production with business operations divided into four major categories: geophysical acquisition and surveying services, drilling services, well services and marine support. Under the guidance of the company's five major development strategies, all key operational metrics improved in the first half of 2025 with net profits growing by over 20% year-on-year. The company's value creation capabilities continue to strengthen, operational efficiency has improved and its brand influence and value creation capabilities, both domestically and internationally continue to expand.

Today's event is divided into two parts. First, Mr. Qie Ji, the Chief Financial Officer, will present the company's 2025 interim results, followed by a Q&A session. Please welcome Mr. Qie Ji, the CFO, to present the results.

[Ji Qie, executive]

[Foreign Language].

[Operator]

[Interpreted] Thank you, Mr. Qie, we will now proceed to the Q&A session. [Operator Instructions]

[Unknown Analyst]

[Interpreted] First of all, congratulations on the excellent results. In the industry, you are the only company achieving a growth and your growth actually exceeded 20%. I have two questions to ask. The first question is about the Drilling Services segment. In the first half of the year, you achieved growth in both volume as well as price and your utilization also increased.

So I am a bit worried about the possibility of lagging behind of contracts. So I would like to know, given the low oil price in the second half of this year as well as next year, do you think the daily rate can be maintained in a stable level? My second question is about the Well Services segment. So results have come down a bit. What are the reasons? Is it related to low oil price? What about the second half of this year and next year? What will be the outlook, please?

[Unknown Executive]

[Interpreted] According to forecast by third party, oil price is going to stay at a relatively stable level at about $65 to $70. So in the industry, this oil price is considered to be a reasonable and a medium level.

Regarding the Drilling Services segment, actually, altogether, we have 13 drilling rigs in overseas countries and the rest are in China. Now in Norway of Europe, there are four drilling rigs with contracts up to 2029 or 2030, for Middle East, around 2028; Southeast Asia, '27 or '28. So in the coming 2 to 3 years, we believe that the contract situation overseas will be stable. For the drilling rigs in China, basically right now, the asset price is at stable level.

Then you asked about the utilization rate of our technology or Well Services segment. If you compare our company with our international peers, especially the three major companies, renowned companies in the world, on average, our utilization rate is higher than theirs.

Then basically, for this particular segment, the scale -- in the first half of this year, the scale of revenue came down by around CNY 400 million. And in terms of profit, there was a decline by about CNY 110 million to CNY 130 million. So there are two factors involved here. First of all, the customer base or number of customers decreased within China.

Secondly, for the oilfield chemical industry, basically, there are two lines, or two segments involved here. The first is about drilling fluid. The second one is about well cementing. And in terms of the international market competition, there is more intense competition, and that's why we have changed our charging basis.

And in the past, fees or charges were based on materials. But now we have changed this charging basis to one that is based on technological system. So there is a slight negative impact to our profit.

[Unknown Analyst]

[Interpreted] My first question is related to the drilling segment. So in the first half of the year regarding jack-up drilling rigs, the daily rates increased 28% year-on-year. So what factors have driven such an increase?

And then as you mentioned just now, overseas, there are 13 drilling rigs, and there are already contracts being locked in. So in the future, is it true that there won't be any room for adjustment or increase of the daily rate?

[Unknown Executive]

[Interpreted] You just asked about the increase of daily rates for the jack-up drilling rigs. So this mainly happened overseas. Within China, there isn't any change. So regarding the eight drilling rigs daily rates overseas, well, because last year, there were some rigs being suspended in the Middle East. And so for our average daily rate for the overseas drilling rigs, there is indeed a year-on-year increase.

And then you also asked a question about the daily rates of our 13 drilling rigs overseas. As mentioned earlier, in the industry, based on third-party forecast in the coming 1 to 2 years, oil price is going to be at a reasonable level. So we are also optimistic about that. So that is about the macro overall situation in the industry.

Besides, actually, daily rates also depend on the regional distribution of our 13 drilling rigs as well as our customers. So basically, for our 13 rigs, four of them are operating in Norway, five in the Middle East, three in Southeast Asia and one in Brazil. So based on third-party forecast, those rigs in the Middle East, Norway and South America, this year, when it comes to total investments made by major oil companies, there is an increase, even though in the first half of the year, there was some decrease in investment, especially upstream exploration-related investments.

However, for our situation, the contracts that we have signed are in the regions that I mentioned earlier, and they are mainly signed with national companies and international companies in the above-mentioned regions. So even though there might be some impact from the macro overall industry, if you look at the smaller environment that we are in as well as the contracts that we have signed, we still have confidence in the daily rates.

[Unknown Analyst]

[Interpreted] Basically, I have two questions to ask. The first one is related to the Well Services or Technology segment. In the beginning of this year, in terms of CapEx, you gave a rather high guidance. And the most important part is about the overseas business. In the first half of this year, however, there was some slight decline in terms of revenue. So if you look at a breakdown by region, so which part has slowed down a bit more, whether it is within China or business overseas?

If it is a slowdown mainly from overseas, then are you going to make adjustments to your CapEx? And then -- well, in relation -- the second question is related to your long-term bond. This year, it is going to mature. So how are you going to make use of your funds? And at first, I thought that you are going to pay or distribute interim dividend. So what are you going to do with the funds? Are you going to pay or increase dividend? Or are you going to continue to take out debt or loans?

[Unknown Executive]

[Interpreted] So first of all, I would like to thank you for your interest and attention paid to our Well Services segment. In terms of the year-on-year and profit -- year-on-year revenue and profit, there was a slight decline. The bigger impact is within China. So first of all, as I explained earlier, there was a big decrease in the operation and also work done by the investors and also by customers within China. So the impact arising from this amounted to CNY 200 million. And the second point is, as I explained earlier, we have changed the charging or fees model in relation to the well cementing and also the drilling fluids.

And then about our overseas situation, the main impact was in Southeast Asia, Indonesia. So in the past, again, the workload and utilization by our customers was not full. At the same time, there was some impact to revenue and profitability because of transformation of some assets. And then in South America, there were also receivables factors. So these are also some factors that have impacted our overseas situation.

Now let me answer your second question. So at the end of June and also at the end of July, basically, we had actually completed the loan repayment of $1 billion. So in relation to the source of funds for us to repay our debt, first of all, we make use of our self-owned capital. At the same time, we also repaid loans by funds that we have borrowed. So in this way, we were able to solve our funding issue. And then at mid-June, if you look at our debt position, well, whether it is about the tenor of the debt or the financing cost, liquidity and also our future development needs basically, we are able to make use of better or optimized debt structure to deal with the situation.

So recently, if you look at the international market as well as the Chinese market, there was big volatility in terms of the interest rate as well as exchange rate. So by making observations of all the above changes, last year, we had already set the theme or target of improving our work within the scope of financing that we set last year.

And then you also mentioned measures to reduce cost and to improve efficiency. Well, first of all, this is the requirement of the regulator. At the same time, this is an essential choice or inevitable choice of our company as well because of all the uncertainties that we have seen in the oil price as well as in the external macro industry. So what we need to do and should do is to do our job well and to manage cost well in order to offset all these uncertainties.

[Unknown Analyst]

[Interpreted] I have two questions to ask. The first question is related to the Drilling Services segment. So in the coming 1 to 2 years, will there be some room for increase when it comes to GMV as well as the daily rate? The second question is related to the Well Services and Technology segment. So there was a decline in revenue. So is this a short-term phenomenon? Or is it related to the decrease in CapEx of CNOOC.

[Unknown Executive]

[Interpreted] So you just asked a question about utilization rate of our drilling rigs. So for quite a long period of time, if you look at the early 4 years of the 14th 5-year plan period, where return had improved, there was also improvement in both utilization as well as price structure. This year, our company's operation level and standard had improved.

This is actually a fulfillment of the promises that we have made to the market and to investors. In the future, there will still be fluctuations and volatility in the market. So we will continue to control cost and to increase revenue. This is a target that will never change. Besides, we will continue to enhance our operation level and standards. Again, this is also a target that won't change.

And then in relation to the Well Services and Technology segment, there was some adjustment to certain or some of the projects. But then anyway, within our company in terms of the operation of projects, we have quite clear targets to meet. If you look at the early 4 years of the 14th 5-year plan period, basically, there was -- the major revenue came from overseas. So we are going to continue to improve our work in this segment.

We do have internal indicators and metrics that we have set. But based on all these indicators and metrics, we can see that for the Well Services and Technology segment, we have moved on to the right track. And then first of all, we need to stabilize and also reinforce our fundamentals within China. At the same time, we have to make sure that we can achieve growth in the international market business.

Well, the development of the Well Services segment is not like those related to large-scale equipment. So first of all, we need to see the development of infrastructure and then we need also customers' understanding before we will be able to see a market to be developed and to see a gradual revenue generation. So the development will be different from the operation and business about large-scale equipment.

[Unknown Analyst]

[Interpreted] I have two questions to ask. The first question is related to the Drilling Services segment. So demand has shown a variance or divergence. So the situation may be better in relation to the higher end deepwater side, but not as good for the other areas. And also, when it comes to the disposal or sale of older vessels, well, do you have any new or renewed plan in relation to this? So if you compare the disposal of old vessels and also the revamp or redevelopment or renewal of vessels, which one will give you a higher return also comparing with having new vessels? And then my next question is related to the two vessels in Middle East that is COSL Seeker, Gift, where are they now?

[Unknown Executive]

[Interpreted] So you asked a question about old and new vessels. This has been an issue that has disturbed us for quite some time. First of all, there are uncertainties in the market. Besides the vessel fleet should also -- the structure should be optimized, also optimized at a low-cost manner. And during the 14th 5-year plan period, we have been looking at how to optimize our vessel fleet. And so far, we had already made some progress.

And then we are doing a lot of work in terms of design of Made in China drilling rigs. So in 30 to 40 years, if you look at some major top companies in the industry, we have got quite a lot of positive recognition from the industry and many of the companies in the industry are very willing to explore with us this particular pathway or route of designing Made in China drilling rigs.

So this year, we are already in the actual promotion and facilitation process. We believe that in the first 2 years of the 15th 5-year plan period, we will move on to concrete building works. And then we believe that for the new drilling rigs, we are going to see a quite positive prospect of it. With the use of these Made in China drilling rigs, we hope that in an environment of low to medium oil price level, we will be able to explore and create a pathway for development at low cost.

In Saudi Arabia, if you look at the main customer, actually, in March last year, until now for 18 months for their own reasons, they had actually suspended the operation of 30 drilling rigs. And then in May to June this year, they also suspended some platforms at an earlier than scheduled date. So the point that I mentioned just now was actually early termination, not suspension.

And for those three rigs that were under or subject to such early termination, two of them are COSL rigs. So that is Gift and BOSS that were mentioned just now. And because of such early termination, the fees that have to be paid will be based on 50% of daily rates.

So in relation to the early termination, after that early termination, we also looked at the market needs. And then actually COSL 936 rig platform was used to replace the Gift rig. And then so in China, there are the COSL 936 rig as well as the BOSS rig being operating in the Middle East.

So in relation to the contract, actually, the contract was awarded in 2018, and it is a term for 7 years. And in December this year, the contract will mature. So as I said earlier, because of early termination, the amount of fees to be paid should be 50% of daily rate. However, in 2018, that was the tough period in the industry. So the price or the rates were not high. This is because the industry would like to ensure operation. So because of such early termination, there isn't negative impact on our own profitability as well as free cash flow.

Let me talk about future arrangement concerning those rigs. First of all, regarding COSL 936 rig. So it is being deployed to the integration project within China. So at the end of October, it is going to commence its new project or operation. And then for the fourth rig, it is in the Middle East and other regions, and it is in active participation of bidding. So we have confidence in future work arrangements for these rigs.

[Operator]

[Interpreted] Thank you management for the answers. Because of time constraints, we will conclude the Q&A session here. We will now invite Mr. Zhao to give concluding remarks. Thank you.

[Shunqiang Zhao, executive]

[Interpreted] Thank you very much. So today is the last meeting probably during the 14th 5-year plan period. So next time when we meet, it will be in the 15th 5-year plan period. So under the strong leadership of our Board of Directors, we are actually implementing our five major strategies with full force, and we have actually achieved a virtuous or positive growth trajectory.

So we have seen good results basically in terms of our technological leadership, our industry development situation, our market influence as well as our innovation capability. So we have strong confidence of becoming an internationally first rate company providing oilfield services. During the 15th 5-year plan, what we need to do will be as follows. So first of all, we have set a very clear goal of being an international first rate company. That's our very clear goal.

So we will then gradually extend our services being oriented to not only the energy service industry, but we believe that there will be also development in emerging industries area. The second point is in relation to innovation. So during the 14th 5-year plan period, we have made a lot of technological investments. In 2020, investments into the tech segment amounted to CNY 1.3 billion. And last year, the amount already exceeded CNY 2 billion.

And in the coming period, there are two new projects, which can be actually merged into one, and we have got a lot of support from our parent company. So during the coming period, what we need to do is to enhance our innovation capability. So we will be able to work on projects that are of larger scale. If you look at our Xuanji project, well, that was a project with a total value of over CNY 1 billion.

And with the Xuanji project, so then people will be able to make use of this equipment to get better product capability. and to get larger-scale projects. Only with the Xuanji capability, then we are able to really move on to a very first-class infrastructural project development. And with this, we also lead the industry in the technology area, and we can also move on to new areas to align our innovation capability.

And then another point is about our customer base. So we have broadened our customer base in terms of both domestic customers as well as international customers. And we have created new products based on our technological innovation capabilities so as to continue to lead the industry. During the 15th 5-year plan period, we aim to be, as I said, first rate internationally. And if we are able to do that, then even if you look at any market, any industry in the world, we'll be able to be benchmarked to first-class level internationally.

Well, of course, we feel a lot of pressure when we try our best to work towards this goal. However, we do feel a lot of hope in attaining these targets. Finally, thank you all investors for your continuous support. We do look forward to your further attention and support on our company, and let's work together to achieve a better future. Thank you.

[Operator]

[Interpreted] Thank you, investors, for attending COSL 2025 interim results presentation. The company will continue to maintain communication with everyone through various channels. Today's discussion is concluded here. If investors wish to engage in further communication, please feel free to contact the IR department. We look forward to meeting you again in the future. Thank you.

Statements in English on this transcript were spoken by an interpreter present on the live call.