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Good morning everyone. I am Wu Yanyan, the Board Secretary. Welcome to our virtual interim results announcement for the year 2020. We have to skip the face-to-face meeting, but to move it online. Thank you very much for your understanding and support. The interim results were published last night. Due to the pandemic and low oil price in the market, the oil service sector has been facing with serious challenges. However, we have managed to deliver even better performance than before. We have received great attention and support from all of you while we grow our business. The board and the management will be happy to have more interactions with you today.
Before we start, shall I introduce the management to you? They are Mr. Qi Meisheng, the Chairman and Executive Director and CEO, Mr. Zhao Shunqiang, President, and Mr. Zheng Yonggang, our CFO, and me myself, the Board Secretary. I would like to invite Mr. Zheng Yonggang, our CFO, to walk you through our business performance. Mr. Zheng, please.
Good morning, ladies and gentlemen, welcome you to attend COSL 2020 interim results announcement conference. Before the formal introduction, I would like to remind you to pay attention to the disclaimer. Today's presentation will be divided into two parts. First is 2020 interim results review. Second is our future prospect. In the first half of 2020, under the due impact of the epidemic and the drop in oil price, I believe many of us are in our first time to see the negative number of oil price. Of course, we hope this is the last time. CapEx of global oil and gas companies reduced, and the global oilfield service market was seriously impacted and challenged.
The competition in the oilfield service industry became intensified, leading to more or less decline in the equipment utilization rate and operating price. COSL has proactively responded to the industry challenge with our eye on medium and long-term strategic layout, starting from the four aspects. First, strengthen market development and customer maintenance. Second, continue to conduct R&D and result application. In 2019, the contribution from our technical service already reached nearly 50%. In this year, it will be ranged from 40%- 50%. Third, carry out fine management and strict cost control. Further optimize our financial structure.
Although affected by the macro industry, the company's profitability indicators, including revenue and profit, improved. In the first half of the year, it recorded operating revenue of RMB 14.5 billion, an increased rate of 7%, net profit of RMB 1.72 billion, an increase of RMB 736 million, with an increased rate of 74.6%. Revenue and net profit show outperformance in large international drilling and oilfield service companies. As shown in the above figure, the utilization rate of the company's drilling rigs, vessels and seismic vessels were above the average levels of its international peers in the first half of 2020. The company was ranked among the top international peers in terms of both its equipment and technical service.
For example, our drilling ranked number two, our cementing ranked number three, our well logging ranked number four, our directional drilling ranked number four. Our supply vessel is globally ranked number five, and the drilling and completion fluid ranked number seven. At the same time, COSL has achieved outstanding results in strengthening market development and customer maintenance. First, COSL further consolidated its leading position in the core offshore market in China, and the market shares of some businesses continue to grow. Second, after continuously and steadily promoting the development of the international market, the company's image as an international oilfield service contractor has become more obvious. In the past, for the most time, a global company, oil and gas company, COSL's image, just a drilling company. Now, I believe for the most oil and gas company, COSL not just a drilling company, but also the technical service company.
The company's global market capabilities have been further strengthened. The company has coordinated the allocation of resources in the domestic and overseas market to make a positive contribution to the expansion of domestic exploration and development efforts. On the basis of consolidating the existing market, the Indonesian market has developed into the two new market to provide large-scale equipment and technical service. As you know, due to the epidemic and the drop of oil price, the global market declined. For our some core overseas market, due to the past outstanding operation performance and safety record, the market shares for some our core overseas market continue to grow. Indonesian market, just an illustration. For example, in the first half of 2020, in our Indonesian market, signed the large-scale business contract, October, well support service.
Also we enter the new market, for example, entering two new markets for the first time, secure the three-year service contract, drilling and completion fluid service. Go to the next page. After introducing the company's market development achievement, we will continue to demonstrate the profitability improvement brought by the technical upgrading. In recent years, the company has continuously increased investment in R&D. Paid attention to strengthen the management of technical service. Accordingly, the company has made frequent breakthroughs in R&D of its new technology service and further improved efficiency and the profitability and the technical service. The company fully enhanced the efficiency of the operation and improved the quality and efficiency by taking advantage of the integrated technology of research, production, and application.
Technical upgrading not only improve the profitability of our company, but also effectively help our customer, our clients, to increase reserve, to increase production, and save cost. This page, just some illustration to show how COSL to help our clients to improve the efficiency in the different phase: exploration, development, production, and how to help our clients to save cost in OpEx and CapEx. In the first half of 2020, while strengthening market development, sustainable technology R&D, and application of achievement, the company continued to well complete the refined cost management by focusing on the goals of reducing cost and increasing efficiency. In the first half of 2020, by reducing the material consumption, repair and maintenance cost, subcontracting fee, and leasing fee, the company reduced a total of RMB 844 million in variable cost. Here are just some explanation.
For example, if the workload maybe increase 3%, if the material consumption remains the same, which means the sale maybe save the 3% in the material consumption. In the past, for example, the subcontracting fee, if we have 100, the subcontract maybe 22 our subcontractor. Now we subcontract maybe just 15, which means save $ 5. In the first half of 2020, we totally save RMB 844 million in cost. The epidemic is the world's worst public health crisis in the century. The company make every effort to prevent COVID-19 to maintain the safe and stable production and operation. The impact of epidemic is not shown in the company's production and operation. No suspected or confirmed case confirmed by the medical institution has been found at home and abroad.
COSL not just care our business production and operation, but also, we also care every our stakeholder, including our employee in China and also in the overseas, and also their family members. Go to the next page, our QHSE. COSL continue to consolidate our QHSE management, persist in promoting the concept of green production, and strengthen safety culture exchange. During the period, the company's safety production situation was generally stable. As always, the company pay close attention to the corporate governance, promote and maintain the interest of investor. During the period, the company was awarded with the such honor. For example, the Best Investor Relations award, Best New Media Operation, et cetera. Okay, now we go to the second part. Let's look forward to the company's development prospect in the second half of 2020, and also the next few years.
According to the latest forecast of IHS report, the Brent average oil price in 2020 is around $40-$50, and it's expected to rise slightly in 2021. In the future, international oil price may reign at low levels. Global upstream capital expenditure in 2020 will remain stable or decrease slightly compared to 2020. The oilfield service industry will still face fierce market competition. Oil and gas energy continue to occupy an important position in China energy consumption structure. The Seven-Year Action Plan on the domestic oil and gas companies will provide prosperity for the oil service industry for a certain period. CNOOC is our important customer. According to the latest data published, although its capital expenditure dropped to a certain extent in 2020, the investment in the domestic core market remain unchanged, basically unchanged.
Benefit from this, it's expected the domestic workload of the company will be stable in the second half of 2020. In 2020, the company will focus on the five aspects of the innovation-driven overseas development, green and low-carbon market leadership, and talented basic development of enterprise. Build capability respected by the industry in the following fields, such as operation performance and operation team, the best technological innovation and equipment management, the most competitive operational cost advantage, the world-class management and safety culture, and realizes the strategy of technical development and international development with four segments, thus gradually developing itself into an integrated oilfield service provider covering multiple energy fields and bring international competitive. Next, I will elaborate just on company's development ideas in several aspects.
As we introduced above, the company's operational capability in the equipment segment or the development advantage of the technical segment have laid the foundation for achieving its strategic goals of technological development and international development. The company's current core market is offshore China market, and CNOOC is the company's core customer in the offshore China market. This is also one of the company's unique advantage compared to the other our competitor. For other oil companies which are active in the offshore China market, we will continue to maintain a good cooperative relationship with them and, of course, consolidates the company's leading market shares in the offshore China market. The company will build new growth momentum focused on the four major leaps. From conventional to unconventional, for example, heavy oil.
From the traditional to new energy, from offshore to onshore, from traditional to modernization and digitalization. Based on the domestic market situation, we have prepared a slide to introduce the contract sign of 31 jack-up drilling rigs and nine semi-sub drilling rigs currently operated and managed by the company. As some contracts are still in the bidding and negotiation process, it's likely the above information may change. In the future, the company will continue to implement the international development strategy and continuously expand the market scale.
We will also gradually bring into play the scale effect of the overseas market to further increase the contribution ratio of the technological sector, accelerate the serialization and industrialization of technology products, give play to the synergy and cost advantage between segments, and increase the scale of key markets such as market in Asia Pacific, Africa, the Middle East, thus making the company enjoys more opportunity to obtain service contract in exploration, development, and production, the different phase of oil and gas company. For the operation status of drilling rigs in the overseas market, there are the contract sign, 11 jack-up drilling rigs and five semi-sub rigs currently operated and managed by the company, and some still in the bidding and negotiation process. As same, it's likely to be changed.
The company will actively responded to the national call and develop green and environmental protection industry such as EPS waste treatment. Currently, with a year of service experience and an operation team of more than 100, the company has accumulated EPS environmental service experience for more than 230 wells, all of which has very good safety and environmental results. The scale of global drilling waste management market continue to improve. With huge market potential in the future, the operation volume is expected to continue to increase. The company will further accelerate the development process of modernization, digitalization. In the second half of the year, the company will implement the digital transformation plan as soon as possible.
From the digital transformation path for each professional segment, building a digital talent pool and expert pool, complete the construction of the industrial internet infrastructure platform, and build a global intelligent supply chain, the company will gradually build itself into a technology-led global and digital oilfield service company. The competitive advantage of COSL is also reflected in the healthy financial structure. Abundant cash flow and good liquidity enables company to have greater financial flexibility in the environment of low oil price. Based on the company good operating performance and excellent financial indicator, the international credit rating agency recently gave the company a better rating. In June 2020, the company successfully issued the senior bonds worth up $800 million.
Whole insurance cost created the lowest yield of USD bonds in the global oil service industry at that time, thus secure the long-term funds with low cost, effectively protecting the cash flow in U.S. dollars, significantly optimizing and improving the comprehensive debt cost term structure, and further enhance the company's financial flexibility. The recent international macroeconomic situation and the major change in the commodity price have brought new challenge to the company's operations. Following the technical development and international development goals, the company will further transform cost advantage into core competitiveness. Based on its unique integrated advantage, stable financial structure, and a team with rich management and operation experience, the company will create higher value return for our shareholders, customers, and all parties in this society. Thanks again to all the stakeholders and investors for your continuous support and understanding of the company. Okay. That's all for today's introduction presentation.
Your question are welcome. Thank you.
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Thank you very much, Mr. Zheng, for your presentation. Now I would like to open the floor for questions. We will invite questions from investors on the telephone line.
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For the interest of time, we will allow two questions from each person maximum. Please identify yourself before you raise the question. Please be reminded that we have a translator here with us, and all questions and answers will be translated.
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Now I would like to pass the time to the operator and invite the first question.
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This is Mr. Lau from BOCI, two questions. The first question is that in the report that you published last night, we noticed that you said you have price pressure in the drilling sector as well as the technology sector. I just want to understand why, and do you see any signs of pricing up in the near future? The second question is that in the drilling sector, the revenue declined. It has been a growing point in the last few years, and just want to understand why. Do you think that it will come back again? Thank you.
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Thank you for your questions. I would like to take your first question about the service price pressure. It's true that in the first half, all the contracts that we were doing were basically extensions from some midterm to long term contracts from last year, and some of the contracts will complete in the second half. After that, we will kick off the explanation of the execution of new contracts, which were acquired based on new market price. In the first half, because of the pandemic, as well as the down going oil price in the market, we did see the price pressure in the market and the price was going down. In the second half, in the implementation of existing contracts as well as new contracts, there will still be price pressure.
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As for your second question, in the technical sector, as you can see that in our financial report, the proportion for the technical sector did decline, because in the first half, we resolved some disputes with our European clients, and we received compensation for the contracts with that client. Therefore, we allocated more resources to the equipment sector. Therefore, the technical sector appears to be less. There's another reason: in the technical sector, you also see that the revenue declined by RMB 500 million or so. This is because that in the first half, during the pandemic period, a lot of restrictions on either personnel or resources. In the second half, I believe that the situation will improve. I hope I have answered your questions.
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This is Si Tingting from Merrill Lynch. Two questions. The first question about cost control. We read in the report that there has been over RMB 800 million cost control in the first half. I just want to understand which costs are involved, and which costs are sustainable, and which costs will come back when the oil price and the daily rates go up again in the second half. The second question is about just now you've mentioned that you've got the dispute resolved with the Norwegian client, and you got compensation. I just want to understand, in the second half, the technical sector, what will be your plan for the technical sector? Thank you.
My question is actually regarding to the jack-up and the semi-sub day rates, how much it declined on year-on-year basis if taking out the impact from the Norwegian settlement. Thank you.
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First of all, thank you for your questions and thank you for your recognition of our performance in the first half. Regarding your first question about cost control, if you can refer to slide 12, we talked about the RMB 844 million cost reduction in the first half. That is the result of our great efforts in the first half, and this figure is quite outstanding in the report. Talking about the composition of such costs, they involve the material cost, the outsourcing cost, maintenance cost, as well as the staff cost, in which the material cost and outsourcing cost are the two major contributors.
All these control measures will continue in the second half. Some of the costs are oil price related, for example, the chemicals as consumption materials, the price may go up when the oil price goes up again. For other materials, they are not that oil price related, and we will continue with our control measures. As for the outsourcing cost and leasing cost, we have been working together with our suppliers and partners in order to further reduce the cost. We are also going to undertake the risks in the market together, so that is also part of our combined efforts. Thank you.
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As for your second question about the different rates, whether the daily rate will continue to go and how much it will be. Putting aside the settlement of the dispute with our European client that we got the compensation for that settlement, if you look at the whole industry in China horizontally in the first half, there weren't so many contract being signed in the first half. The market was very quiet, because a lot of companies, a lot of our competitors, are either suspended or just stopped the exploration and development activities. There weren't so many new rates being signed in the first half. However, for COSL, we were lucky, because we were able to guarantee some workload in the domestic market, therefore we were able to deliver our performance.
Domestically, when we talked about the price with our clients, we also adjusted about 10%-15% of the daily rates, depending on different rates. This price will continue to be in our execution for all our contracts in the second half. Thank you.
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One quick comment I want to add to what I said before regarding your second question. For all the investors and analysts, you may have already seen very clearly that in the whole market, our peers, our competitors and our friends, they were actually suffering through all the hard market, and some of them just went bankrupt, and some of them just in insolvency or other in restructuring. They tried everything to manage the operations cost. Some of them had to lay off people or selling part of their business. It was very painful for them in their daily operations. I have to say that we were lucky, we were able to maintain some workload in the domestic market, and at least we delivered our profits. Thanks all.
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This is Mu Lei. Two questions from him. The first question is about the workload. We noticed that there is an increase in the workload, for example in the drilling sector in the first half. However, if you look at each quarter, in quarter two, there is a very slight decrease in the workload. I just want to understand why and do you think that this decline will continue or will it go up in the second half? This is about the workload. CNOOC already said they have got a goal, which is by 2025, they are going to provide two million barrels of oil each day. How do you think about that you can improve your service capability in order to match your client's requirements?
Besides, you have 12 vessels now waiting to work. This is about workload. The second question is about daily rate. They mentioned before that your daily rates, because of the oil price now, it seems to be bouncing back, and therefore the daily rate also starts to going up. For example, the semi-subs, their daily rates already started to climbing back. How do you think about the daily rates in the second half this year, next year and the year after next year? Thank you.
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Thank you for your questions. The first question about the workload. As you can see, that usually Q2 and Q3, these two quarters are the best ones out of the four quarters in the year in terms of our workload. Two reasons accounting for the slight drop in Q2. The first reason is that some of the contracts just come to the end with overseas customers, and therefore we need new contracts. The second reason is because of the pandemic. The COVID-19 virus did spread, and lots of overseas clients had to delay the operations plan. Therefore, our workload was also delayed accordingly. Q3, if you look at this year, our workload will increase but not in Q4. Usually Q4, that is the last quarter for our clients as well. When they finish the annual budget, usually for all the oil service suppliers, the workload will also drop in Q4.
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As for the second part to your first question, how to match with our key customer in terms of our own service capabilities? It really depends on which market segment you're talking about. For example, for the semi-submersible and the jack-ups, we have the high-end ones, we have the regular ones, and besides, we have the vessels. At your peak season, usually we have over 10 vessels waiting. It is true, and it is also normal, because depending on their time, different clients, different markets, and different exploration plans. All these are the external factors that may influence how we operate our own vessels and match our capabilities. In different geos, different clients, they may need different periods of time to getting the license or the permits for environmental protection, for approvals and so forth.
There may be such window, a period of time for our vessels to keep waiting. It is also acceptable and normal. In the second half, in order to match our capabilities with our key clients to help them finish their plan, we have to keep some spare resources, including our vessels available, because once there's opportunity, we must be able to catch up that opportunity, otherwise we will have to miss it. This is also something that we do usually to always keep available resources for our clients.
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For your second question about the daily rate. You can see that recently the oil price began to go up. We believe that there are two reasons accounting for this. The first reason is that this pricing up is not because of the demand and supply relationship, but rather it is because of the people or the human reason. There's still serious oversupply of crude oil. As for how long this pricing going up situation will continue, we don't know. It really depends on organizations such as OPEC. The second reason is because of COVID-19. Depending on how this pandemic will go, we don't know how well or how much the oil price will go up continuously.
Overall, two reasons accounting for this price going up situation you can see in the market now, the oil price, how will the oil price go in the future? We don't know. How will the pandemic influence the exploration and the development activities in the future? We don't know. Therefore we are not so sure about this strong correlation between oil price and the daily rate.
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As for how the delivery will go in the second half, next year and the year after next year, it's really hard to give you a very precise forecast on that. One thing we can say is that after two to three years and the past two to three years and the first half, we believe that the worst situation has already gone, and the situation in the future will not be worse than what we experienced in the past two, three years or in the first half. What I want to say is that no matter how the daily rate will change next year or the year after next year, we will have confidence to maintain our operations. Because we are also confident about the China situation with the strong support from the domestic market. Thank you.
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This is Andy from Morgan Stanley. Two questions, both are related to the technical oil service sector. The first question is that, in your report, you mentioned that you realized the breakthroughs in the technical services. For example, to replace some services from the overseas suppliers. What do you think about the market size will be in this regard? For example, for the CNOOC, they have been using the overseas suppliers for the oil services. How much business that you will get or you will replace from those overseas suppliers? This is about the market size of technical oil services. The second question is about your future plan. In the international market, how do you foresee the growth of your own competitiveness in the oil service sector?
You mentioned that the overall market environment, the potential for the suppliers, it was not a very promising market and the competition has been very fierce. How do you foresee your own capabilities to compete with the international players? For example, in the next three, five, or 10 years, do you think that it's possible for you to become a number one or number two in the international market in the technical oil service sector? Thank you.
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Thank you for your questions. The first question, it's true that some of the services are still provided by overseas suppliers to, for example, [Sinop]. The volume of such services is not very big. In terms of the technical oil services, we have been providing services to our clients, a lot of them, for example, in the chemical suppliers and the drilling fluid suppliers, 100% from COSL already. In terms of all the technologies, a lot of technologies are already provided by us. For example, the underground drilling. Depending on different segments, there are some partners or overseas suppliers involved in providing such services, but it is done through COSL. This is our business model. Any overseas supplier, they provide services but have to go through us. This is how we outsource such services.
Along with more technologies, more breakthroughs, as well as better supply chain, we were able to provide as many new services to our clients as possible. In this way, we can reduce the total volume of outsourcing and improve our profit performance in the future. Thank you.
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Please don't be pessimistic about it, because along with more technical outbreaks, more technical products will be available, and we will definitely take initiatives to enter into the onshore markets, both in China and outside of China.
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As for your second question about the international competition and our goals. Talking about our competitiveness and what we are going to achieve. It is true that in the first half, all the players in the market witnessed the hardest competition in the market for the whole industry. However, we managed to maintain some competitiveness through this period. For example, if you look at our overseas contracts, if you look at our operations quality in the implementation of these contracts. Apparently we do have our own advantages. This is the first point. The second point is that our technical service capabilities have been improving, and in different markets, we will provide more technical products, technical support and technical suppliers.
In this way, we can fully give the play to our own competitiveness in the oil services sector. In the first half, for example, in Indonesia, we were able to acquire some of the local markets there.
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To your second question, our new president just came on board, and now the management is drafting our plans for the future growth and our future prospects. It is also our dream that we turn the company into an outstanding company in this sector. If you look at our reports in the past two years, we realized the progress in different market segments. equipment also progressed a great lot. drilling is number two in the world, and equipment sector is still moving forward in a very competitive manner. It is our goal that we want to be one of the best performers in the world, and it has always been. While keep progressing our technology each year, we are also getting closer and closer to this target. We are also fully aware that internationally there are strong competitors, and there is a gap between us.
The most established competitors, the number one is 5x of the size as us, the number two is 4x of the size, and the number three is 3x of the size than us. We are fully aware that these are the goals, and this is also the direction that we will work hard to move on the business. This is also where you can see the potential for further growth in the upcoming years. I hope I have answered your questions. Thank you.
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Thank you management for taking all the questions. We have had a very interactive discussion just now. We talked about the workload, the price, the seasonality, as well as our future plan. Just one quick comment. In the first half, if you look at our business performance, the technical service is still the most important sector in all our business portfolio, which contributed 50.7% of the overall profit. This over 50% already, so it is still the most important one in our business portfolio. In the second half and in the future, we will continue with our stable operations, the safe capital positions, as well as the firm technical plans in order to further strengthen our foundation to realize further growth in the future. Oil price is now going back, and I believe that COSL will continue to be one of the most popular topics for our investors. Thank you.
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Before we end the results announcement, I would like to thank all our investors and analysts and friends who have been supporting us and giving great attention to the company. Once again, thank you very much.