Distinguished leaders, investors and analysts, good afternoon. Thank you for joining us today for the China Oilfield Services Limited, COSL first quarter earnings conference call. COSL is one of the world's largest integrated oilfield service providers. Our services span every stage of oil and gas exploration, development, and production. Our operations are categorized into four core segments, Geophysical and Engineering Exploration, Drilling Services, Well Services, and Marine Support Services. By leveraging our integrated capabilities, we provide clients with full lifecycle oilfield solutions. We remain highly responsive to evolving trends in the international oil and gas markets, while steadfastly prioritizing technological innovation as our leading strategic driver. We continue to refine our lean cost control measures and actively promote the synergy between domestic and international markets, the so-called dual circulation strategy.
We are committed to translating our premium equipment and technical prowess into a leading market position, striving to deliver robust performance to reward our shareholders and society at large.
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First, please allow me to introduce the members of our management today joining us, Mr. Qie Ji, our Chief Financial Officer. Today's conference will consist of two parts. First, our CFO, Mr. Qie Ji, will provide an overview of the company's performance for the first quarter of 2026, and then this will be followed by a Q&A session. I will now turn the floor over to our CFO, Mr. Qie.
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Thank you, Mr. Qie, for the presentation. We'll now proceed to the Q&A session. To allow more investors the opportunity to participate, please limit yourself to no more than two questions. Before asking your question, please state your name and company affiliation. Please note that consecutive interpretation will be provided throughout the Q&A session. We kindly ask you to pause after each question to allow time for the interpreter. Now, if you wish to ask a question, please press star one on your telephone keypad and wait for your turn. That means that you shall press the star key first, followed by the number one. Thank you.
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I am Zhao Naidi from Everbright Securities. I have two questions. Starting by the first question, as we can observe that with China's national strategy of ensuring national energy security, COSL has been increased production output as well as reserves, in particular with remarkable achievements in the deepwater area and South China Sea. We're both seeing that you have increased the utilization of your semi-sub platform in deepwater areas in Q1. The first question concerns, can you give us a guide on the day rate forecast and operational volume of your deepwater platform throughout the year? That's the first part of the first question. The second part is, how do you see your competitiveness against international oil service giants? Thank you.
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The second question is we have observed that oil prices have been skyrocketing since the beginning of March and have remained a high level. In particular, given the high oil prices and given the current geopolitical conflict, China's national energy security becomes all the more important. Me and a lot of other investors all agree that Chinese government will do more in safeguarding its national energy security. The question is, how do you see the status quo of your operational volume? Do you have any forecast for your operational volume down the road as well as the CapEx forecast? Do you feel the same as I have just introduced? In particular, how is your order reflecting such a new situation? Thank you.
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You have touched upon two questions. One more concerning the macro side, another more about our forecast. I'll try to answer both of the questions briefly. Firstly, on the whole, our deepwater semi-sub platforms have been doing quite well for the first quarter of this year, mostly benefiting from our overseas operations, especially operations in Brazil, south part of Brazil, which have seen obviously clearly improved operational days because that platform did not become operational until September last year. As for the Chinese business, our semi-sub platforms' operational days or operational volume have maintained relatively stable as new prices are executed. While to be honest, some of the semi-sub platforms, the prices have increased slightly. This offset the slight decrease of the actual operational days of our semi-sub, which maintained the overall increase of our drilling platform services.
As for the full year cost, because we are waiting for the whole year cost from our clients, we maintain dynamic conversations with them, hoping to satisfy their requirements of resources in the face of the geopolitical situation in the Middle East or in the new era of the 15th Five Year Plan period. Thank you.
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As for the second question, I think that we still need to investigate and analyze how things change regarding the oil prices and regarding the Middle East situation, because we've seen spot prices as high as more than 110 or 120 and even higher, and at one time, WTI was even higher than Brent. However, over the past couple of days, we do see spots went down to about 80+. Such volatility has already become something that we can barely make any forecast about. I still believe that oil and gas suppliers will make sustainable and rational judgment on their part. As for domestic China situation, CNOOC is working to become a leading supplier, contributing to oil and gas production increase in China domestic.
We have also seen that their crude output for Q1 increased, and they contributed a large part of the output increase of crude oil coming from China. Again, to align with the first question, we will keep observing CapEx adjustments and whole year forecast adjustments made by CNOOC, and we will provide resources to provide guarantee to their request. Thank you.
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Thank you very much. Lawrence from BOCI, Bank of China International. I also have two questions. The first question is that I've seen that in the first quarter of your finance expenses, there was a large part of exchange losses. Can you walk us through to what extent or how large such losses and why there was such a loss? And secondly, I would like you to walk us through the income and profit performance of the first quarter. Thank you.
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Okay, thank you very much for asking the question. Regarding your first question about our finance costs, indeed, in Q1 2026, we have seen exchange losses to the amount of around CNY 300 million, CNY 303 million to be more specific, which is CNY 208 million higher than the same period last year. Mainly because of the functional currency that we use and we have business dealings with overseas subsidiaries and the balance contributing to such a number that you have seen is not necessarily a result of our increased business scale overseas. However, as we keep dealing with our overseas subsidiaries, the balance and the number will always be there. Thank you.
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Well, to elaborate further on this question, we are very much aware of foreign exchange profits or losses as a result of the situation that I just introduced and how it affects or even disturbs the operating performance of the company if we are even bothered by that. We are currently examining and looking at some possible solutions to take measures at the right time. We choose the timing to take measures for the purpose of closing any influence on the normal operation of the company as a result of such FX exposure arising from accounting treatment. Measures include, but are not limited to, adjusting the functional currency that we use in bookkeeping. Thank you.
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When it comes to a specific breakdown of our revenue and profitability, on the whole, things are better than expectation in terms of segment breakdown. For our Drilling Services, domestic and overseas revenue, operating margin and operating profits, all three are better compared with the same period last year. In terms of the Well Services, domestic and overseas with especially overseas revenue performed better than expectation. Operating profit margin reached around 18%, and both domestic and overseas Well Services revenue and profits have increased year-on-year. As for Geophysical Services and Vessel Services, both performed stable. Thank you.
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To add one more thing about the operating profits. For the first quarter of this year, operating profits of COSL reached CNY 1.53 billion, an increase of 22% year-on-year. Both domestic and overseas have increased to 20% year-on-year, which means that the company's normal operations have been rather good, excluding or aside from whatever impact that we suffer from the exchange losses.
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Yan Beina from CICC. I have two questions. The first question is about your Jack-up, because I've noticed that your jack-up platforms utilization days in Q1 of this year went down a little bit because of some scheduled repair and maintenance scheme. The question is, after the maintenance and repair complete, do you see their utilization days increase in Q2 compared with this quarter? And my second question is about your business in the Middle East, because we do see some pause in the operation of some contractors in the Middle East in March. However, starting from mid-April, a lot of the contractors have recovered their operations, so I wonder how that will impact your Middle East operation. Thank you.
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Firstly, answer your first question, indeed in Q1 our jack-ups repair days have increased significantly compared with the same period last year. Such repair has already been planned for by the company. You will find that throughout the year of this year, there will be more repair days, scheduled repair days of our platforms compared with previous years. For Q1, mostly such repair are concentrated in our domestic jack-up platforms and our semi-subs repair have maintained stable. You will also find that whatever impact the increased repair days of our platform has on our company's revenue has already been offset by the high day rate of China's domestic jack-ups and semi-subs, and the execution of the high day rate in Norway and increased part contribution by Brazil. Thank you.
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There is one more thing I want to add for your first question, because there is a part about our repair plan for Q2. Such plan will be very much aligned with the operational plan of our clients. That's about first question. As for the second question, the situation in the Middle East, the war occurred or took place in the Middle East on the 20th of February. In Q1, the situation didn't impact us in a major way. However, we do gradually start to feel such impact starting from mid or late March. Specifically, our jack-up and semi-subs in Saudi Arabia and Kuwait maintain operational and keep charging. However, the land rigs in Iraq has been affected by the decreased output in Iraq, and such impact is already being felt. Thank you.
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Regarding your question about the Middle East changing situation, we basically will take two measures in response. One is to try to scale up our businesses in the Middle East. Let me give you some examples.
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From Guosen Securities. My question is I noticed that a couple of days ago COSL announced a cooperation framework agreement with a player in Kazakhstan. Because when it comes to Middle Asia, COSL is a new player, or Middle East, Middle Asia features newly in your global landscape. Can you walk us through the overall market of oilfield services in Middle Asia or specifically in Kazakhstan? I would appreciate it very much if you can give us more details on when you expect the cooperation to become more of a substantiality. Thank you.
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Thank you for the question. Due to the limitation of my professional knowledge, I can only share with you to the best of my knowledge. For COSL and for CNOOC, Middle Asia or Central Asia has been an area that we have left for a long time, and the re-entry into this place is something of significance. Not long ago, the Chair of the Board, Mr. Zhao, went personally to Kazakhstan to sign the cooperation framework agreement that you have just mentioned, which will add a very promising point to the global landscape of COSL.
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We did have conducted some preliminary investigation into the basic oil reserve situation of that country, and we find that mostly the reserves are in the mud flats area and very much prone to extremely cold weather. The plan will mostly request efforts by our colleagues from the cementing business area, directional drilling, LWD and their colleagues specializing in other areas to work together. We are currently having discussions on creating operational plans for some test wells. As more of the details of such plans are coming out, we will be happy to share with all of you more details. Thank you.
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Thank you. From Bank of America, I have two questions. For the first question, I would like to pursue further on the exchange losses, because we know that exchange profits or losses, only transactional differences are recorded in your profits. As for translational differences, such differences are recorded in your OCI. I wonder whether the appreciation of RMB has affected your dollar-denominated contracts already signed. Also I would like to ask, because you mentioned that your semi-sub platform's day rate have increased. May I ask whether such increase is observed in domestic China, or is it because you have made adjustments of your day rate because of the RMB appreciation trend that you'd expect will continue down the road? One more part of the question is if RMB keeps appreciating, whether exchange losses will keep being recorded in your profits in the future?
My second question is regarding your Well Services, can you walk us through a more breakdown of your revenue and profits in Q1? Thank you.
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T o answer the question, let me give you a very simple example using specific numbers so that you understand it more easily. Let's assume that the parent company transmits $100,000 to its overseas subsidiary, so that $100,000 is reflected on the balance sheet of the parent company as CNY 700,000 if the exchange rate is CNY 7. In extreme situations, if the exchange rate goes to CNY 7, which means on the balance sheet of the parent company, the CNY 700,000 becomes CNY 600,000, and the CNY 100,000 is naturally recorded as exchange loss. For the overseas subsidiary, because the $100,000 does not change because everything is priced in U.S. dollars. In doing balance sheet consolidation, $100,000 can be balanced out, but the CNY 100,000 as a result of exchange loss is recorded as finance expense. Thank you.
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If say RMB keeps appreciating against the U.S. dollar, the exchange loss that you will find on our balance sheet will expand as a result of the example that I just mentioned. We are working on taking different measures, trying to narrow the $100,000 exposure, taking different means, for example, including narrowing it from $100,000 to $10,000 in order to minimize the impact. If you take a look at a longer time frame, throughout the 14th Five Year Plan period, in between the two years of 2021, 2022, there was the one year a major exchange profit and the next year a major exchange loss, but the overall impact on the company's balance sheet throughout the 14th Five Year Plan period was CNY 440 million. Thank you.
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As for the second part of your first question, you have actually raised three questions. The second part of your first question regarding the semi-subs. On the whole, day rate of our semi-subs for this year did not change in any major way. However, there was indeed one semi-sub in domestic China. The day rate has increased significantly in Q1 and its utilization rate reached almost 100%, which greatly contributing to the revenue increase of our semi-sub. As for overseas semi-sub platforms, because we have signed long term fixed rate contracts with the clients, therefore, there wasn't any major change. Thank you.
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As for the Well Services business segment, in Q1, the revenue was CNY 6.07 billion, an increase of 5% year-on-year, mainly benefiting from the integration trend of our overseas business, which is growing very fast. In Q1, net margin was CNY 1.11 billion, an increase of 18% year-on-year. Both domestic and overseas have increased, especially overseas net margin has increased. As for the Well Services margin rate, in Q1, the margin rate was 18.2%, an increase of two percentage points year-on-year. Domestic margin rate exceeded 20%, becoming a main contributor of our profit margin increase in Q1, mainly because last year there were certain one-off factors reducing our margin and such factors becoming absent this year contributed to the margin increase. Going forward, we will continue to work harder in securing new contracts for our Well Services.
As mentioned, despite the war in the Middle East, we still managed to secure one high-value long-term contract for cementing service. I believe that for all the impact there will be, such impact is only short term. As you can see, we still have four WellLeader drill lock systems operating simultaneously in Iraq, which will help us gain increasing market recognition and help us accelerate our business scale up in Middle East. Thank you.
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In the interest of time, this will be the last investor.
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From Changjiang Securities. The question is about your shareholder return plan for the 15th Five Year Plan period. Do you have any plans to increase your dividend payout to the shareholders? Thank you.
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Thank you very much for the question. Giving back to investors or investor return, it is fair to say, is the purpose and the center of focus of all the business and operational activities of the company. As you can see, the increased EPS is a reflection of the 20% net margin increase of the net profit attributable to the shareholders, which is a testament to the fact that we respect and give back to shareholders.
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Throughout the 14th Five Year Plan period, you've noticed that our revenue or our turnover increased from CNY 30 billion to CNY 40 billion and to CNY 50 billion, exceeding CNY 50 billion. We are still making plans and adjusting plans for the 15th Five Year Plan period. The hope is that in the next five years, our revenue can achieve another milestone increase as we have seen before. As for the dividend payout, we of course hope to fully share our growth with shareholders. This is very much dependent on the business growth of the company and strong cash flow situation of the company. On the whole, the payout ratio, we hope the payout ratio shall be stable with the increase. Thank you.
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Thank you for the questions and thanks to Mr. Qie and the management team for their detailed insights. We would also like to express our sincere gratitude to everyone for your ongoing interest in and support for COSL. Due to time constraints, this earnings conference call is now drawing to a close. If you have any further questions, please feel free to reach out to our IR department anytime. This concludes our conference call for today. Thank you all and have a nice day.