In the first half of 2021, oil and gas companies were reluctant to increase upstream investment despite the gradual increase in oil prices, and capital expenditure did not return to the pre-pandemic level. As a result, it takes a while for overseas sales of drilling rigs and other equipment to recover. During the period, the Company’s revenue decreased 14.1% year-over-year from RMB1.807 billion to RMB1.552 billion in the first half of 2021. Gross profit was approximately RMB318 million, representing a decrease of 47.6% from RMB608 million for the same period last year. The loss attributable to shareholders of the company was approximately RMB73 million.
Oil and gas engineering services expanded with remarkable overseas business growth
Honghua began to provide oil and gas engineering services in Middle East in 2012, and Honghua oil service team HH029 became the only operation team in Zubair oil field that never suspended operation during the COVID-19 outbreak. With excellent operating capacity, Honghua signed long-term service contracts with various internationally renowned oil service enterprises. Regarding the overseas market, in the first half of the year, the value of new orders signed for overseas oil and gas engineering services of Honghua amounted to about US$120 million. The rig service agreement with Schlumberger has a term of 54 months, the longest service term in the oil service history of Honghua, and is the highest value contract Honghua has signed. The project is expected to commence successively in the second half of the year, which will generate stable and continuous cash flow for Honghua.
Enhanced leading position in fracturing market with digitalization of electric fracturing equipment and services
Honghua’s all-electric fracturing has been widely recognized in the market, with a year-on-year increase of 41% in the number of newly signed orders for fracturing engineering services and a year-on-year increase of 24% in the number of newly signed orders for pumping services. In the first half of the year, Honghua provided 2,539 stages of pumping services, representing an increase of 26.4% as compared with the same period last year, despite a large service base. In response to the digital development trend in the industry, Honghua promotes the upgrading of the whole-process electric automation of equipment. Honghua became the first company in China to use the fully electric automated fracturing technology, and has established a digital fracturing simulation laboratory. In terms of fracturing equipment for unconventional oil and gas development, Honghua carried out a comprehensive digital upgrade of electric fracturing pumps and related equipment, and sold the upgraded equipment with sales of approximately RMB250 million. In line with the concept of “all-electric, intelligent fracturing”, Honghua launched the first electric coiled tubing unit in China, and it began the sale of the new product after industrial testing. Compared to the traditional diesel coiled tubing unit, the electric coiled tubing unit features excellent performance and efficiency, a high degree of automation and strong synchronous control.
Continued to focus on “equipment to parts and components” strategy, steady growth in equipment market
Under the trend of global energy transition, Honghua continued to implement the strategy of “equipment to parts and components” and focused on providing more tailored services to clients. During the Period, Honghua launched the first automatic machine tool system with “one-key linkage” in China, which has been successfully tested at PetroChina and Sinopec and has been recognized by customers. Meanwhile, breakthroughs have been made in the sales of a number of new products launched by Honghua: the first deployment of a 1600HP mud pump unit on an offshore drilling platform, a series of signing new orders for new-generation five-cylinder pumps, the sale of fracturing sets, and the signing of orders for the rotary running casing.
In the second half of 2021, supply and demand in the oil and gas market will be in a tight equilibrium due to expected subdued production growth from OPEC+, slow recovery of shale oil and gas production in the United States and recovery of oil and gas demand. As oil prices remain at mid-high levels, upstream capital expenditure is expected to recover gradually, and the equipment market that lags the recovery of the oil price will rebound in the near term. Honghua will continue to fully play the role of a leading drilling rig company, and promote the transformation and sales growth of complete drilling rigs product set overseas from the aspects of service and equipment upgrading. With its technological research and development advantages, Honghua will accelerate the automation and intelligent iteration of drilling and fracturing equipment, actively promote the sales of new products including “one-key connection” automatic machine tool system, electric coiled tubing and new-generation five-cylinder pumps. In response to China’s goal of reaching carbon emissions peak, carbon neutrality and national energy security, Honghua will seize the opportunities around electric development in the unconventional oil and gas market in China and focus on shale oil and other markets with great development potential.
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.
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