During the Period, the Company encountered the COVID-19 pandemic and oil price fluctuation. Honghua’s revenue from continuing operations decreased by 11.2% to RMB3.931 billion from RMB4.426 billion in 2019. Profit attributable to shareholders of the company was RMB50 million in 2020. Despite numerous challenges posted by the pandemic and the plunge in crude oil price, Honghua achieved profitability in three consecutive years due to rapid growth of its core business as well as expansion of new businesses.
AGAINST THE BACKDROP OF NATIONAL ENERGY SECURITY STRATEGY, HONGHUA’S FRACTURING BUSINESS CONTINUED TO GROW RAPIDLY
Although Brent oil price plunged in 2020, the Chinese government still prioritized national energy security and was determined to expand domestic oil & gas exploration to satisfy domestic market demand. National Development and Reform Commission (“NDRC”) and National Energy Administration (“NEA”) jointly announced Guiding Opinions on Energy Security in 2020, which specified plans to promote domestic energy production and improve supply capabilities, increase inputs in oil & gas exploration as well as oilfield outputs, and accelerate exploration of unconventional oil & gas resources. Benefiting from such strategy, Honghua highly valued unconventional oil & gas equipment and service business within the Company, resulting in revenue growth of 29.5% in the Chinese market. Revenue from the domestic market accounted for 73.9% of total revenue, reaching the historic high since IPO.
During the Period, the Company’s sales and product R&D have all made significant breakthroughs. Honghua sold 4 sets of electric fracturing pumps, and launched the first set of electric coiled tubing in China and electric automatic sand transportation and storage device. Compared with traditional diesel-driven coiled tubing, electric coiled tubing innovated and improved in three aspects, i.e., performance and efficiency, automation, and synchronization control. The electric automatic sand transportation and storage device was successfully rolled off the production line and realized the first well site operation. Adhering to the concept of the overall development of electric fracturing and taking 6000HP electric fracturing pump as core equipment, Honghua launched numerous complete sets of electric fracturing equipment in turn, including electric fluid supply skid, command control center, flexible tank, high-pressure manifold, electric coiled tubing, and automatic sand transportation and storage device.
In the stage of exploring cost-reducing, efficiency-enhancing, and eco-friendly development models, Honghua facilitated large-scale development of unconventional oil & gas with electric fracturing equipment. Therefore, the Company’s pumping service achieved explosive growth, with stages of pumping service offered throughout the year amounting to 4,357, an increase of 48.5 % over last year. During the Period, Honghua assisted clients in breaking multiple records throughout the year. At Fuling block, an average daily fracturing construction record of 5.6 stages and a daily fracturing construction record of 8 stages were achieved. Moreover, Honghua’s fracturing crews created a record of 366.7 tons of sand addition during operation, setting a new sand addition record following PetroChina’s sand addition record during deep shale gas single-stage reservoir reconstruction, further responding to market recognition. Following Honghua’s first shale gas fracturing engineering service contract in 2019, after expanding the scope of operations from single pumping service to comprehensive electric fracturing services, Honghua obtained a complete set of electric fracturing equipment leasing and service contract in Changning that worth RMB325 million from CNPC Western Drilling, a subsidiary of PetroChina, as well as all-electric fracturing engineering service contracts for three shale gas platforms in a block in Chongqing that worth RMB288 million.
FLEXIBLY ADJUSTED BUSINESS STRATEGY TO SATISFY THE EVOLVING NEEDS OF CLIENTS, PROMOTED SALES IN PARTS & COMPONENTS SEGMENT
Although the overseas market was affected by factors including the pandemic and oil prices, Honghua managed to adopt a flexible sales mechanism to seize the needs of customers for parts and components updates and upgrades and deepened the long-term partnerships. During the Period, revenue from parts & components increased by 6.5% RMB1.722 billion from RMB1.617 billion in 2019. In Russia, relying on the long-term cooperative relationship with existing customers, Honghua signed a framework agreement for the procurement of oilfield stimulation equipment worth USD30 million, which included several sets of top drives, direct-drive pumps, retrofit rigs and other products independently developed by Honghua. The independent sales of mud pumps increased by 83.0% as compared to the corresponding Period of last year, mainly attributable to the achievement of mass sales of mud pumps due to the shortlisting of Sinopec’s annual drilling mud pump framework agreement this year.
LEVERAGED THE BACKGROUND AS A STATE-OWNED ENTERPRISE, AND ADD NEW ENERGY BUSINESS OFFERING WITH FLEXIBILITY
Honghua responded to national policies and deployed new energy industry actively to counterbalance cyclical fluctuation risks of the traditional petrochemical industry. Relying on its advantages as a state-owned enterprise and utilizing its existing manufacturing capacity, Honghua successively entered into offshore wind power construction agreements with state-owned enterprises, with orders totaling over RMB1 billion throughout the year.
At the beginning of 2021, the COVID-19 pandemic remains not yet fully under control, and there are still many uncertainties in the oil and gas market. In the long run, low-carbon and clean energy will be the direction of future development, which will pose challenges to the traditional petrochemical industry. Nevertheless, we still see many positive factors are emerging in the short term. With the expected large-scale vaccination programs, and the oil prices in stable recovery as a result of the ongoing joint production cuts, the “darkest moment” of the oil and gas industry had passed. In 2021, Honghua will further develop fracturing equipment as its core business to satisfy clients’ needs of reducing costs and enhancing efficiency via adhering to the national energy security strategy, grasping domestic industry opportunity of increasing energy reserve, and responding to market demand for high efficiency and sustainability. Moreover, Honghua will also pay close attention to the delivery of offshore wind power projects and subsequent market expansion. At the same time, in light of the bottoming out in the overseas market, Honghua will seize the strong demand arising from the recovery of the overseas market and strengthen development and sales of its principal business of drilling rigs and promote the execution of major domestic and overseas orders. To be a world-class and domestically leading supplier of integrated solutions for energy development, Honghua will further enhance cost control and optimize supply chain management to increase cash turnover efficiency as well as strengthen the reserve and training of strategic and innovative young talents and accelerate the digital transformation of the Company for high-quality and high-efficiency sustainable growth.
About Honghua Group Ltd
Honghua Group Ltd (Stock Code: 0196.HK, “Honghua”) is the main platform for energy equipment development of China Aerospace Science & Industry Corporation (“CASIC”). As one of the leading land drilling equipment manufacturers in the world and the largest land drilling rig exporter in the PRC, Honghua is primarily engaged in developing and manufacturing land drilling equipment (drilling rigs, parts and components as well as downhole tools, etc.), completion products (including fracture package), offshore drilling module and package as well as shale gas and oil exploration and development service. Leveraging strong R&D capability, high-quality production facilities and a mature international sales network, Honghua’s products have been sold to a large number of famous enterprises all over the world, across major oil-production regions such as North America, the Middle East and emerging markets including South America, South Asia, Russia, Central Asia and Africa. In the future, Honghua will continue to focus on its key businesses while increasing the resource allocation to unconventional oil and gas business and the “energy + internet” field. Honghua aims at becoming a world leading oilfield service provider.
This press release is issued by Institutional Capital Advisory (Asia) Limited on behalf of Honghua Group Co., Ltd. For any enquiries, please contact:
Institutional Capital Advisory (Asia) Limited
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