Corporate representatives, investors and analysts, good afternoon. Thank you for joining China Oilfield Services Limited conference call for the third quarter of 2026. Guided by our vision of becoming a world-class energy resources and service company with Chinese characteristics, COSL continues to foster an enabling environment for scientific research and innovation, delivering targeted breakthroughs and environment for scientific research and innovation.
Our technological innovation is accelerating our transformation, continuously enhancing operational effectiveness and the technological value across our core business applications. We continue to coordinate our products and operations with our reform and development initiatives. Our overall workload and utilization rates for major equipment remain high. Equipment resources are being supplied steadily and operational efficiency continues to improve. Overall, the company maintains strong momentum towards high quality and sustainable development.
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First, please allow me to introduce today's management representative, Mr. Qie Ji, Chief Financial Officer of the company. Today's conference call will be divided into two parts. Firstly, Mr. Qie Ji will walk you through the company's financial and operating results for the third quarter of 2026. We will then open the floor for questions. Now I will hand over to Mr. Qie Ji.
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Thank you to the management for the presentation. We will now move on to the Q&A session. To give more investors an opportunity to participate, please limit your questions to two per person. Before asking questions, please state your company name and your name. Please note that consecutive interpretation will be provided during the Q&A session. After asking your question, please allow some time for the interpretation. If you would like to ask a question, please press star one on your telephone keypad and wait. Press the star key first, followed by the number one. Thank you.
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I'm Zhao Naidi from Everbright Securities. I have two questions. Firstly, I want to start with congratulations on the good operational results of the company. The first question is we've seen that China's 15th Five-Year Plan already gave some clear instructions on oilfield services businesses, so this has attracted our attention. We would like to know what is the impact of such instructions on the oilfield service company as a whole, and also how do you compare it with the Seven-Year Action Plan? Do you see things will go faster or will become more steady? That's the first question. The second question, we pay very much attention to your internationalization, including the specific strategies and plans of your international endeavor, as well as the status quo of your key overseas projects and the outlook down the road. Thank you.
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Thank you for asking the question. I will try to answer these questions because these questions are very much related to our judgment of the industry as a whole. Regarding your first question, to my knowledge, COSL, as one of the core service providers to CNOOC, of course, we will deliver on our dual responsibilities and play our due part when it comes to fulfilling the requirements of China's 15th Five-Year Plan regarding the oil and gas industry, in particular the offshore oil and gas industry. We will definitely have more in-depth cooperation with CNOOC. Currently, we are still talking about how to better align the two sides to fulfill such requirements.
In terms of specific arrangements, of course, we are still discussing the specific arrangements. Two things I want to highlight here. Firstly, in terms of the workload plan for this year, we believe that it's actually better than the expectation we set at the beginning of the year. Secondly, in terms of the overall idea, because only four years are left for us to complete the 15th Five-Year Plan, and the oil and gas industry, given its characteristics of having a slow start and accelerating in the process, which means that probably we need to do it faster and even things will be more challenging for us compared with our own Seven-Year Action Plan. Thank you.
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Then regarding your second question, in terms of the oil and oil field services, the future of that, of course, in order for us to have a high quality future, we definitely need to develop our overseas business, putting it top of our priority, and that represents one of the exclusive ways to achieve high quality development in the future, in my personal opinion. If I were to expand on it, currently our international business, how much it accounts for our overall revenue. The number currently stands at between 24% or 25%, and in the future, we will accelerate the pace to bring the proportion to the next level, next order of magnitude. That's the first point I want to highlight here.
Secondly, we need to take comprehensive measures to improve our profitability. That's the second point. The third point, region wide, we need to be focused. For one thing, we need to continue to rely on the advantages of CNOOC, including CNOOC's international network and the presence. On the other hand, we need to continue to deepen our presence in conventional areas, for example, Kazakhstan, an area familiar to you all, as well as Mozambique. These areas we are already closely following the situation there.
Fourthly, if we want to do a good job in internationalization, we need to fully unleash the advantages of our technology, in particular with regards to our conventional equipment. As for the outlook, I believe that when the company makes budget plans for 2027, we will give these considerations the key attention. Actually, not long ago, we have held a high quality overseas business development conference, which I would like to have more discussions with you in details in the future if such opportunities allow. Thank you.
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Loh Kai Ye from Jefferies. Thank you very much for giving me this opportunity to ask. I have two questions I would like to have your opinion on. Firstly, I got to know that CNOOC has actually won one of the blocks in the Brazilian GIG region in the order of proportion of 70-30. So I want to ask, what are the potential opportunities for COSL and also can you shed light on the status quo, the current situation there?
The second question is, again, as the previous speakers already touched upon the 15th Five-Year Plan of China, and not long ago, actually just last Friday, China's National Energy Administration also proposed the next 10-year action plan. So I wonder how these action plans affect your asset allocation considerations? Because we know that currently your utilization rate already is at a high level. So I wonder will there be additional considerations in that respect? Thank you.
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Thank you for the question. Let me answer the first question regarding CNOOC being granted part ownership or part right in the block in Brazil as a subsidiary specifically specializing in oilfield services under CNOOC. With such capabilities to provide comprehensive services, we will definitely pay close attention to and closely monitor relevant opportunities commercially, because on the whole, I believe that Chinese companies will be the operators there. Therefore, I think that we will carry out, or we will make some efforts in that respect.
On the whole, I believe that in the Brazilian market, both sides shall follow a market-based principle. There's one more point I want to highlight here: starting from last year, we started having operations in Brazil, either exploration or building up of expertise. We are gradually increasing our familiarity with the local business environment. I believe if opportunities allow, that will be conducive to us being part of this project. Thank you.
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As for the second question regarding our plans for the 15th Five-Year Plan period, how to fulfill instructions, as I already touched upon this question before, this is indeed a question worthy of consideration. As for the current situation, I believe you all know that the utilization rate of equipment of Chinese players now is at a rather high level. As I mentioned, things will be even tougher during the 15th Five-Year Plan period, and we have to deliver within a shorter time span. Therefore, to some extent, our investment in equipment, in terms of investment intensity, such intensity will be even more than during the 14th Five-Year Plan period, or comparing this with our Seven-Year Action Plan.
Therefore, in terms of the total holdings of equipment, the total holdings by COSL will increase during the 15th Five-Year Plan period. Just as you can read from our previous several announcements, be it in terms of the total number of vessels or rigs, we try to build by ourselves, but we do not rule out opportunities to seek purchase opportunities from the market. Of course, the key message here is that investment in heavy assets shall be done in areas where there is a high level of certainty, and we also consider both domestic and international. Thank you.
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Wang Jiaqi From CICC . I firstly would like to say thanks. I have two questions. The first question, I want you to walk us through the profit, the gross margin of your various business sectors during the third quarter, in particular regarding the oilfield services gross margin. I also wonder if there is a rough guidance regarding your profits from orders placed from the same system. That's the first question. The second question concerns RIG, because we already see very good returns yielded from your projects in Brazil and Norway. Therefore, I would like to ask whether you will consider expanding into new zones and blocks for your semi-sub, as well as any international plans for your jack-ups, any new projects that you are paying attention to. Thank you.
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Thank you very much for the question. Regarding the first question, our performance in the third quarter on the whole, our operational performance has been rather normal during the third quarter, comparing either with the first half of the year or the second quarter. Overall profitability, it is fair to say, is better than the same period. As for the specific technical service sector, we can continue or we can sustain the 17%- 18% operating profit level, something I do see as rather normal. Thank you.
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In terms of our technical sector, the first half of the year's operating profit was 17.1%, and the number for the first nine months of this year was 17.2%. It's fair to say that the technical service profitability has maintained steady at a high level. In terms of our drilling sector performance, the operating profit was 15.5% for the first half of the year and roughly 16% for the third quarter. In other words, this sector has maintained steady performance with slight increase. Thank you.
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Regarding the second question on the drilling sector. On the whole, our oilfield drilling services sector performance is better than expectation at the beginning of the year. In particular, our overseas performance as represented by Norway and Brazil, you mentioned before. As for the performance domestically, domestic performance is at least on par with the performance overseas. In terms of the drilling vessel, currently the situation is in tight equilibrium, and we are doing gradual redeployment of such equipment to serve domestic use based on the market situation.
As for the overseas market, overseas contracts tend to be of longer term. You may be aware that for Norway, if things go well, we always have the option to extend our contract until the end of the 15th Five-Year Plan period. And the situation for Brazil is, the contract is in a 1250+1250 contract format. In other words, our overseas operational equipment resources is basically predictable. Thank you.
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And there is some additional information I want to add here. For drilling vessels, in particular international drilling vessel market, we also pay close attention to that, closely following it, making dynamic assessment and making dynamic decisions regarding redeployment of our equipment. And one more piece of information I want to share here is that for the drilling business, at least from the perspective of us as an oilfield service company, it doesn't matter. For such equipment, whether it's domestically deployed or internationally deployed, it doesn't really affect its profitability. The high utilization rate currently internally in China probably is better than whatever impact non-continuous operation overseas might have on the company. Thank you.
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Thank you very much. Liu Zhicheng from BOC International. First, I want to say thanks to giving me this opportunity. Two questions. Firstly, I wonder, because if you look at the revenue growth for the third quarter, revenue growth was not that significant. And the situation from last year was that in Q4 last year, your revenue growth was rather fast quarter- on- quarter. However, during the first quarter, your profit level dropped. So can I ask you to give us some guidance regarding what do you see will happen in Q4 this year?
Do you see the situation in Q4 this year to follow a similar path to the situation in Q4 last year? And there is a second question. In the deep water drilling sector, if you want to further expand overseas markets for your deep water drilling services, does that mean you need to have new equipment? Because pretty much all the semi-subs have already been deployed overseas, which means that if you want to get new overseas contracts, does that mean you will need to have new equipment? Thank you.
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Thank you for asking the question. To answer your first question regarding our revenue growth for the third quarter. Our revenue growth for the third quarter was 3% year-on-year on a similar level compared with the revenue growth for the first half of this year. Of course, over the past two years, because of the fast execution of reserve growth and production growth, the execution of the strategy by domestic oil operators as well as our technical capabilities hitting a couple of milestones, our revenue growth over the past two years was rather dramatic.
We look forward to the situation and are making corresponding arrangements. As I've mentioned that if the goals set for the 15th Five-Year Plan shall be reached, or the target shall be reached, then oil companies must start making some arrangements, doing something starting from 2027, 2028. Therefore, we believe that on the whole, we can maintain slight growth for our revenue for this year. Thank you.
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There is one more point I want to add to answer your first question. Of course, COSL will never give up on expansion of our overseas markets. So if everything goes well, we'd expect continued revenue growth from our overseas business, in particular, even after balancing or after offsetting whatever slight impact we suffered from the Middle East. There is one point I want to emphasize here that we hope to expand market expansion in the Middle East as well as other parts of the world to help our revenue growth to achieve even better revenue growth. Thank you.
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Then to answer your second question regarding overseas drilling expansion. When it comes to overseas drilling, we are currently making plans for deep water drilling vessels, and we are benchmarking against international or overseas deep water operational indicators to determine on the technical parameters of all these deep water drilling vessels under plan. And we also pay close attention to the relevant demand from overseas on the deep water market. Thank you.
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I'm Miao Huaxin from Macquarie Group. I have two questions. The first question is, you mentioned that your current equipment utilization rate is rather high. So I wonder when it comes to signing new contracts with CNOOC, are there possibilities for slightly increasing the day rate for either your semi-subs or jack-ups? Any possibility there? And the second question is, you mentioned that your demand from CNOOC, your demand from overseas, your demand from domestic market, such demand are strong. You also have plans for new vessel building and for new equipment building. So the question is, how will you prioritize resource and equipment allocation? Will you prioritize areas with higher day rates, or will you prefer to find a better balance there? Thank you.
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To answer your first question, indeed this year is the first year of the new three-year with CNOOC. On the whole, the equipment day rate has been overall maintained steady. However, as you rightfully pointed out, that we do see addition of additional awards or rewards mechanism specifically in way of classification. In other words, slight increase of day rate for equipment with the good operational performance. Therefore, if you do a dissection of our revenue for the first three quarters of this year for the drilling, part of the revenue growth is indeed attributable to the recognition by CNOOC by way of us ranking high in CNOOC's ranking, and we hope to, with our assets, make it more of a longer term normalized situation. Thank you.
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As for the second question, this is also a question that we as management must give consideration to, meaning that there are a lot of things or a lot of projects to be delivered, whereas our equipment is rather tight. How to make the proper allocation of the tight equipment resources? Personally, I believe one sentence is enough to summarize, meaning with the precondition being the safety of the vessels guaranteed, we strive to achieve as much as we can, if not 100%, but as much as we can, full utilization of the vessels when security of such vessels is guaranteed without leaving them idle.
I believe that this indicator will contribute much, much more to our overall operational performance compared with any slight change in the day rate. One more thing, our drilling services capability domestically and internationally are almost on par. More than or there, double digits on average. Domestic international on par. Thank you.
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One additional question I want to add here, because you mentioned that your parent company has plans to make more CapEx investment. Does that mean this will also be reflected in their continuous stronger demand for your oil and gas service in particular, if such CapEx increase is sustained, how will it affect your longer term goals for your revenue and market share for your oil and gas business? Thank you.
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Then to answer this question, I think that the logic makes sense here because firstly, for oil technical services, this sector contributes more than 50% of our revenue. We have the confidence with and if our parent company increase their CapEx investment, we do have such capabilities and resources to cater to the needs because of the demand. That's the first concept. The second concept is that the technical service sector, its market share in China is definitely going to be very high. And additionally, as I mentioned, that we have to expand our overseas development based on what kind of capabilities. The only way is, or for a large part, is to rely on our oil field technical services, be it in terms of investing in new areas or going overseas with CNOOC projects, or with our own efforts. Thank you.
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Due to time constraints, we will now take one final question from an investor. I will ask the conference operator to connect to the next investor. Thank you.
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Wang Yiming from Bank of America. Apologies for joining the call rather late. I have two questions. The first question is about your FX gain loss for the third quarter, because I saw that you didn't disclose that specific number like what you did for the first quarter. Therefore, I personally assume that the gain loss from FX conversion for the third quarter is relatively smaller compared with the situation in the first two quarters. I would like to have your answer here. Also, I wonder if the gain loss from FX conversion becomes smaller, is it because of the slowing appreciation trend of RMB, or is it because COSL has introduced some new methods to manage your forex? That's the first question.
The second question concerns your CapEx, because from the cash flow perspective, we are happy to see that your operating cash flow in the third quarter, just like the guidance provided by the management, has turned positive during the third quarter. However, if you look at CapEx, our investment in fixed assets for the first three quarters, less than CNY 3 billion, still falling short of the CapEx guidance given at the beginning of the year. Therefore, my question is, do you see your CapEx guidance given at the beginning of this year be fulfilled before the end of this year? If that's the case, that means that you will have to do a big CapEx expenditure for the fourth quarter. If that is the case, is it because of settlement or is it because of plans to do additional asset purchase? Thank you.
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To answer your first question, the situation for FX loss during the third quarter was no better than the first half of the year. It started out with the appreciation of RMB. Our first three quarter FX loss increased from the CNY 560 million for the first half of the year to CNY 720 million covering the first three quarters. Even on a year-on-year comparison, we still suffered CNY 500 million FX loss. This is mainly a result of our historical dealings with overseas institutions, as well as the difference in the denomination currency. It's not because of anything wrong with our overseas operations. Thank you.
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To answer your second question on CapEx, as you pointed out, our CapEx for the first three quarters of this year was less than CNY 3 billion, even less than the same period last year. Also, because at the beginning of the year we gave the guidance of CNY 8.4 billion, which means that we are rather slow in fulfilling the CapEx guidance. Some of the CapEx projects have already been incorporated in our future vessel building plans, and such plans and such CapEx will be gradually released down the road.
Some of the projects we have taken the initiative to make adjustments, and we have taken the initiative in cutting back on some of the projects because of operational arrangements. But currently we have not yet given up on plans to buy additional drilling vessels. On the whole, CapEx this year shall be almost on par with the situation last year, but might be slightly less than the guidance given at the beginning of the year. Thank you.
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Last but not least, I want to add a couple of points already shared with you before. In summary, whenever we make CapEx decisions, we follow the strategy of measuring our capabilities in making CapEx decisions. That's the first point. The second point is, whenever we must do something, we will be resolute in making such things. Thirdly, there is no strong correlation between whether we have high or low CapEx vis-a-vis our return to investors. There is no strong correlation there. Thank you.
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Thank you for your questions and for the management team's detailed responses. We appreciate your continued interest in and support for COSL. As we are approaching the end of the conference scheduled time, today's conference call will now conclude. If you have any further questions, please feel free to contact the company at any time. This concludes today's conference call. Thank you.