Ladies and gentlemen, good morning. Welcome to the Corporate Presentation for China Oilfield Services Limited. Let me first introduce the management on the panel today: Chairman of the company, Mr. Liu Jian, CEO and President, Mr. Li Yong, CFO and Executive Vice President, Mr. Li Feilong, and Mr. Yang Hai Jiang, Company Secretary. Now, let me pass the time to Mr. Li Feilong to walk us through the company's results.
Good morning, ladies and gentlemen, our friends. Today's presentation will be divided into two parts. First, I will share with you our results' performance in 2011, followed by a review of development in the prospects of COSL in the future. The year 2011 was full of challenges for COSL . The industry saw ongoing challenges in the macroeconomic environment and stiff competition. COSL managed to tackle the difficulties with all kinds of measures and expanded into new markets by capturing various opportunities. Our operating results maintained good momentum, and we strengthened the company's international competitiveness and QHSE management, kept production safety stable, made important progress in technology research and development, and further strengthened our cost control. Our comprehensive capabilities have further enhanced. Now, let me walk through our results in 2011 and the latest business development.
In 2011, despite the unfavorable market conditions in the whole industry, our revenue achieved a record high to RMB 18.43 billion, up around 5% year-on-year. Operating profit margin and profit margin before tax were 27% and 28%, respectively. Outperforming the peers. Our financial cost was further down by 32% with a parallel advantage in the funding cost, illustrating our capability in cost control. Our net profit reached RMB 4 billion, and earnings per share was RMB 0.90. During the period, the total asset was up around 2.1%, total debt was down 4%, and profit attributable to shareholders increased by 11.2% to RMB 28.5 billion. Our capital structure was further improved with a giving ratio down to 56.2%. We further expanded into new markets and increased our competitiveness. For the domestic market, we enforced our leading position in offshore China and market share.
While in market, COSL captured increasing demand for high-end track car rigs by deploying high-end equipment to operate in overseas markets and secured a number of international trading contracts. First, at the end of 2011, a third of our trading platforms operating at overseas markets received good feedback from our clients, and revenue from the overseas market increased by 20% to RMB 5.17 billion, further raising the contribution to 28% of the total revenue. COSL 's market size in Indonesia, Norway, and Gulf of Mexico kept improving with economics of scale gradually achieved. In the past few years of developing in the overseas markets, leveraging its high-quality service and continuous efforts, COSL has established a good brand image. As our well services capabilities strengthened, our competitiveness was further enhanced, and our customer base became more diversified.
This laid a solid foundation for our fast-growing international business. COSL' s international development has come into shape, and the regional economics of scale gradually achieved with service standards matching to international levels. For example, the Southeast Asia market, our business coverage trading was well over the extractory. During the year, we secured nine new clients with contract sales, achieving record highs. COSL has nearly expanded into the Iraq and Cambodia markets at the same time. As its international business further expands, COSL , as an international citizen, devotes more attention to safety and environmental protection and respects the interests of the stakeholders where it operates. Therefore, it has endeavored to safety system establishment and management, emergency management optimization, living crisis settlement, promotion of environmental protection, energy emission reduction, charity, and public well-being structure.
year, COSL further increased its investment in technology and strengthened its project research and development standards and emphasized technology-driven 2011, COSL obtained 104 patents in total, of which 17 were innovations. The total number of patents at the end of 2011 was 39% more than that of 2010. insights, COSL strives to solve technology bottlenecks and take its key clients' demands. As the first priority to develop well services-related technologies, so as to improve its service capability.
With its outstanding performance in capital returns, strategy management, and corporate governance, social responsibility, and management, COSL has won a number of awards of recognition, including the 2011 Top 10 Best Board of Directors of State-owned Chinese Listed Companies, and the 2011 Top 50 Best Board of Directors of Chinese Listed Companies on the May board. Now, let's take a detailed look into our four segments' performance. Trading was still the biggest driver among the four segments, with revenue and operating profit contributions of 52% and 69%, respectively. Well services ranked second in terms of revenue contribution. Its contribution as a proportion to total revenue and profit declined year-on-year due to a decline in domestic business and the OLX incident of Panglai 193.
By ensuring high utilization rates of self-owned vessels, the Marine and Transportation Services segment recorded an 80% year-on-year revenue increase through effective integration of external resources. Benefiting from the development of new capacity and strong domestic demand, the Geophysical Services segment achieved outstanding performance, with revenue and profit up 55% and 73%, respectively. Its contribution to the company's total revenue and operating profit were up 13% and 12%, respectively. Next, let me walk you through the performance of our four segments separately. Drilling, the global drilling market still faced surplus supply in capacity in 2011, and the day rates saw a slow rebound. In the international market, high-end jackups recorded outstanding performance, with utilization rates and day rates higher than low-end and old jackups.
Against such a backdrop, COSL, on one hand, continued to strengthen its leading position in offshore China, and on the other hand, diverted efforts in expanding into the overseas markets. COSL managed to remain with a high utilization rate and a stable service price for its drilling. The increase in the numbers of operating days brought about by four 200 ft jackups, and COSL Pioneer drives the growth in total revenue. COSL continued to optimize the configuration of drilling rigs. We have deployed five high-end platforms to overseas markets, making the total number of platforms in the overseas market increase to twice.
In order to meet more stringent safety standards and high operation requirements, we have upgraded our four modular rigs in Mexico and successfully renewed contracts. Well Services, the work volume for Well Services has dropped year-on-year due to the impact of Panglai 193 oil spillage incident and challenges in operations demand. We proactively developed new markets and new businesses to provide service with higher value-add. We opened up the unconventional market, and the proportion of priority technology continued to grow, and the work volume of the coalbed methane project continued to grow, and oilfield output enhancement work has gradually gathered pace. Marine and Transportation Services, this business was under adjustment and transitions in 2011. Although we faced strong market demand in the offshore China market, competition within the industry was further intensified.
Under such a situation, we differentiated ourselves by investing in and commissioning a commission structure of high-end and high-power vessels. We will capture more vessels from the third parties to maintain the market share. As at the end of 2011, we possessed 75 utilities vessels, three oil tankers, and five chemical carriers, and this is one working vessel. Our fleet runs at full capacity and remains with a high calendar day utilization rate at around 95%. Besides the utility vessels, the shipping volume of our oil tankers and chemical carriers maintains stabilization. Geophysical, as at the end of 2011, we operated eight seismic vessels, five survey vessels, and one OBC team. During the period, the geophysical segment achieved outstanding performance due to the improvements in capacity and operation efficiency brought about by new equipment. 2D and 3D geophysical operation volumes record significant growth.
Haiyang Xi'ou 720, the 12-streamer seismic vessel delivered in April, brought about a working volume of 6,800 sq km , making the total number of streamers reach 43, and greatly enhanced the operation capacity and efficiency. Moreover, our OBC team delivered in mid-2011 also brought us the operation of 300 km. Besides new added capacity, we captured market opportunities through effective development and deployment of resources to secure full operations in capacity. Now, let me share with you the business outlook for COSL. The global economy continued its slow growth in 2012. The IMF estimates the average growth rate of the global economy is around 4.5%, and the government reports that China will see its GDP growth slow down to 7.5%.
In terms of oil prices, it is expected that the oil price will see limited room for decline due to the geopolitical factors, shortages in supply, and stable growth of new emerging markets. The remaining fluctuation at a high level in general. According to the major institution's statistics on oil price in the future, the average oil price will hover at $100 in 2012. Bakla Capital estimates that the capital expenditure on global oil and gas exploration will reach around $600 billion in 2012, up around 10% when compared with that in 2011. CNOOC, as our major client, will continue to increase its investment in oil exploration development and production. Its CapEx in 2011 is $9.3- $11 billion in 2012. It also plans to explore 114 wells, up around 11% compared with that in 2011.
Stable oil prices provide a favorable environment for the recovery of the global oilfield service market. Of these, we saw the drilling market rebound and the utilization rates of heavy equipment recovery. Service prices have bottomed up, why, due to more capacity to commence operations, the day rate growth seems slow. The demand for high-end jackups shows improvement, with utilization rates and service prices rebounding faster than that for the low-end ones. Under such a situation, we see room for future price increases for COSL's high-end drilling rigs operations in international markets. During the 11th Five-Year Plan, we focus on shared oil waters and conventional resources to meet with the industry trends and further enhance our competitiveness. We will continue to develop our traditional business and endeavor more efforts in developing new business such as output enhancement, deepwater, and unconventional resources.
We believe this new business will become driver for our future development. We aim to optimize the structure of our large-scale equipment and become more stronger and more specialized. Riding on industry trends, COSL will continue to make structural adjustments, optimization, and transformation of its large-scale equipment portfolio. We will also boost our investment in deepwater and high-spec equipment to enhance our competitiveness in preparation of international competition. In the drilling segment, the capabilities of our drilling fleet will further improve after structural adjustment. Apart from the drilling segment, we are also enhancing and adjusting the structure of the geophysical segment and marine and transportation segments. The above table shows our future capacity plan. I'm not going to go through here one by one. With structural adjustments in our equipment portfolio, international competitiveness of COSL's drilling fleet has been improved greatly.
According to the latest statistics, most drilling contracts for domestic operations in 2012 have been confirmed. 86% of the drilling platforms operating overseas have contract coverage until end 2012, while 71% of their contract coverage lasts over 18 months. Service fees are expected to increase after the delivery of high-end semi-submersible drilling platforms. Deepwater exploration and development are brought to life in 2012. Apart from CNOOC, some PSC clients are also closely following up with Haiyang Xi'ou 91. Currently, CNOOC and its major foreign oil partners like Anadarko, BP, BG, and Husky own rights and interests in exploration and development in China's South Sea. Deepwater-related business is expected to be further increased in the future. In addition to the deepwater market in China's waters, we are also actively exploring the deepwater market in Norway and the North Sea.
We expect our scale and presence in the deepwater service market of the North Sea will further expand. COSL Pioneer has a very successful operation track record in the North Sea since August 2011. Its excellent operational and management capabilities were highly praised and recognized by clients. COSL Innovator arrived in Norway in March. We will fulfill the operating contracts for Statoil. COSL Promoter, which will be delivered in the second half of this year, has also secured long-term contracts in the North Sea. COSL Prospector will be delivered in the fourth quarter of 2014. As of today, recoverable coalbed methane in China amounted to 11 trillion cu m. Domestic coalbed methane production is expected to reach 21.5 billion cu m during the 12th Five-Year Plan. In addition, we saw huge potential in shale gas resources in China.
It is expected in 2020 annual production of shale gas will be over 100 billion cu m, a level similar to today's conventional natural gas production. Unconventional oil and gas development will bring new development opportunities for oil service companies. Following the success in providing logging service for coalbed methane Australia in 2010, coalbed methane service, the coalbed gas service market is gradually expanding. We have won a number of service contracts, including China Sea coalbed methane, Far East Energy Corporation, and Petro AP. We have already finished works for over 30 wells and expect to work on hundreds of wells in 2012. For the shale gas, we will be providing logging service for CNOOC's exploitation project in Anhui. We have been still able to improve our capital structure and enhance our debt ratio.
Our CapEx target for 2012 will be RMB 4-RMB 5 billion, and we are considering buying use of new high-spec deepwater equipment to boost capacity. Considering our current financial status, the company's cash flow is able to meet the demand for daily production and operations, as well as CapEx, even without any equity financing. Having said that, we are still open for any possible financing activities to support our future development. 2012 will be full of challenges and opportunities. We will strive to growth. COSL has made substantial development over the past decade. The Board of Directors and senior management are confident about continuing to for COSL's shareholders. With that, here comes to the end of my presentation. We are now open to open the floor of questions. Thank you.
Thank you, Mr. Li. We have the question from the floor. Gentleman in the front row.
Good morning, gentlemen. It's Scott Darling from Barclays. You mentioned in your outlook about accelerating development of the international business. Why and how do you think you're able to compete with sort of U.S. and European oil-service firms? Also, could you then talk to us about in the longer term, where do you see COSL going internationally? Thanks a lot.
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Every company has its own competitive edge.
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As compared to European and U.S. company , Mr. that COSL's competitive edge lies in our efficiency and our cost control.
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COSL is not a purely China-based company. In many aspects, COSL has been using other international advantages as well.
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In run, COSL is committed to its international development.
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In the markets that the company has already a foothold, it will enlarge its market share.
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When you look back to five years ago, the international business scale was much smaller than it is today.
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The company will make further efforts in developing new markets as well.
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Next question, gentleman in the second row here.
Thank you very much for the presentation. I have two questions, if I can, about your assets. The first question, for the first 2011, COSL reported that it had six land rigs, and recently, for the full year of 2011, it reported that it had eight land rigs. Can you tell me where those additional two came from and where they're operating currently?
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The two land rigs are operating in Iraq.
Where did they come from? I'm sorry. Did you CapEx and buy them, or did they just show up, or are you leasing them?
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The company purchased the two land rigs.
A question about your semi-sub day rates.
You want to see the future trend or whatever?
No, I have a specific question. In the first half of 2011, your day rates on the semis were $195,000 a day, U.S. For the full year, it's $261,000, which is a pretty big pickup. I realize you added one additional semi-sub in the second half of 2011, but I would love to find out how we got to $261,000 a day for the full year.
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The addition of another semi, COSL Pioneer, was the major reason for the increase.
Pioneer was operating for only a half of 2011. I believe the day rate was more like $350,000. Were there price increases on the other four that obviously have an average day rate of about $195,000? The numbers just don't work for some reason.
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Are the two COSL Pioneer among the existing three semi-submersible rigs? One of those has a significant increase in day rate as well.
One of the original four.
Yes.
Right. Only one of them.
Only one.
Only one.
Thank you.
Question from this gentleman.
Morning. James Hubbard from Macquarie. Two questions, please. One, you mentioned buying a second hand or a new high-end rig, and the financing options are obviously open. Is increasing the debt on the balance sheet an option, or do existing covenant levels prevent you from materially increasing your debt? Are we looking at debt, or is it only A shares, and that's the only option? That's that question. The second question is, Well Services seems to have suffered from Panglai. Are you actively working on Panglai now on the restart? If so, are you working at a level which would imply that Well Services' results will improve sharply in the first half of this year? Thank you.
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The company is open to both debt financing or equity financing.
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The time required for equity financing is longer because the company has to go through some procedures. Which option to go depends on the timing that the company wants to finance. [Foreign language]
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As they note, Panglai 193 didn't resume production recovery yet. Caozhou has some operations there, but it is not very significant, mainly on some rail reserve maintenance and some maintenance work on drilling performance. Thank you. [Foreign language]
Michael Luk from Mizuho Securities . A follow-up question on your debt equity. I've seen your debt ratio actually has dropped dramatically over the past two years. Does your company have an optimal debt equity capital structure, or do you just base it on your needs?
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As you said, the company's debt ratio has dropped from 67%- 56%. The industry level is around 40%, some between 30% - 50%. For COSL, any range between 40%- 50% is acceptable.
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The Chairman also adds for Caozhou, they think that giving ratios of about 55% is a very safe level. [Foreign language]
Hi, this is Yunfei from BoCom. I just have a question. You talked about the economy of scale in Indonesia, Gulf of Mexico, and Norway. I'm curious about your operating margin on the COSL Pioneer, and if that's at a mature level right now, and how does that compare to your other semi-subs, and how is it going to look like compared to this year from last year? Thanks.
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The operating margin for COSL Pioneer is around 25%- 30%. As compared to the jackup operating in offshore China, the level is a little bit lower. In the international market, they think that COSL Pioneer has enjoyed a competitive edge in this day rate level.
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Mr. Li also adds he thinks that you cannot only single out the operating margin of COSL Pioneer because the rig has been just put into operation. As you note, there are two more drilling rigs to be delivered under CBD. In the long run, the company will have some economy of scale and reduce the operating costs. [Foreign language]
Yeah, thank you. Neil Beveridge from Sanford Bernstein. Two questions. Firstly, you mentioned unconventional gas as being or unconventional drilling as being one of the growth areas for the company. In the 2012 CapEx budget, there are no significant CapEx outlays for purchase of additional onshore drilling rigs or pumping equipment. Can you talk a little bit about what your CapEx plans are for developing onshore drilling capabilities to take advantage of unconventional gas? The second question is around deepwater. Can you just give us an update on drilling operations in the South China Sea? Have we started drilling with HYSY 981? Is the purchase of this rig from the parent company still one of the things that COSL is considering?
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The company has just entered the unconventional gas market in 2011, and it was in a period of trial and exploration.
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In the second half of last year, the company started to see the potential of this area and its own capability in expanding into this area.
in this field.
The company has made an investment of around $200 million in this area in the second half of last year.
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We will see the operations and revenue contributions in June this year.
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The unconventional gas itself is a very new area in China. COSL has formally a team to do some R&D, and they have come back to the headquarters, and the result is very positive so far.
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The investment in unconventional areas as compared to the offshore investment is still insignificant so far.
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The company will remain flexible when it comes to investment in unconventional areas, but they didn't identify an amount because the amount to COSL's total CapEx is not that big.
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One thing is for sure, in 2012, the company will continue to develop and expand this market.
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Because we believe the potential is very good.
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981 was invested by the group company, as you know, and COSL is responsible for management and operation. They think that it is a good business model for the company so far. They do not have the plan to purchase the rig from the group company, but they do not rule out the possibility in the long run. Can we move on to the next question? Gentleman behind, yes. That one, that one, yeah. Yes, yes, yes, go ahead.
Laban Yu from Jefferies. [Foreign language] Well Services, Marine and Transportation Services, Geophysical Services, [Foreign language]
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It was mainly because in the fourth quarter, some costs related to staff, course, maintenance will be reflected in the last quarter of every year.
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The fourth quarter has some factor related to weather as well, because in winter, the Bohai area is not suitable for operations, and even in the south area, they will see some headwinds and other weather conditions as well. In the fourth quarter, they will mainly focus on maintenance work.
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[Foreign language] , gentleman at the back.
Hey, thank you for your presentation. Peter Gastreich from UBS. Is it possible to get a little bit of color for your decline in Well Services segment revenue? Roughly, how much of that would be attributed to Panglai and then what attributed to general market condition? Thank you.
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The decline in revenue for oil Well Services is around $400 million, and less than $200 million was attributed to Panglai , and around $200 million is because of the general market situation. Any other questions? Maybe we take the two last questions, one from the gentleman in the middle.
Liu Fan from Morgan Stanley. I have questions on your margins. The first is, can you confirm the accounting treatment for Haiyang 981 and what it means for your margins? Second, it's relating to the Panglai assets. Now, can you redeploy your Panglai equipment somewhere else, or are you just going to hold that equipment at Panglai 193 until the operations have restarted? Thank you.
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For 981, as you know, COSL will lease the equipment from the group company, and they were in charge of operations and lease to the client side. They will receive a management fee and operating costs. On top of that, they will receive a margin.
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Maybe I recap the conversation just now. The underlying question is, will the margin of 981 be lower, and is it calculated on the day rate basis? The question is yes, the day rate is calculated on the management fee and operation costs as well. The margin will be a little bit lower as compared to the margin right now, because the scale is not, will not have a big impact on the overall operating margin.
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Regarding the Panglai equipment, the equipment was owned by the client. The company is mainly in charge of operation.
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The vessels servicing the Panglai area have been in operation so far, and the company also received revenue in this regard.
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The Well Services related to Panglai operation is actually on hold so far. Maybe we take the last question from this gentleman again.
Thanks very much. Just a follow-up. I believe there is a question about your geophysical services margin earlier that sort of didn't get translated or something. I was wondering, your geophysical services margin absolutely collapsed in the second half of 2011, and I was just wondering if there was a particular reason for it.
The margin for what?
G&G, geological.
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I think your margin was 13.5%, which was down from 42% in the first half. It was a material collapse.
For G&G?
Geophysical.
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Two reasons. First of all, the company has added one 12-streamer semi-submersible vessel last year, so there will be some depreciation costs incurred. Second, normally the semi-submersible vessel does not operate in the winter, but last year they see a very robust demand for this segment. Some of the vessels were towed to an area outside China for operations, but the cost for traveling and other related costs was higher, so it dragged down the profit margin a bit.
Thank you.
[Foreign language] Now we end the Q&A session. Thanks again for your attention. Thanks.