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Public company info - Anton Oilfield Services Group , 03337.HK
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Anton Oilfield Services Group, 03337.HK - Company Profile
Chairman Luo Lin
Share Issued (share) 3,007,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Petroleum & Gases Equipment & Services
Corporate Profile Business Summary: The Group is mainly engaged in providing oilfield technology services, manufacturing and trading of related products in the People’s Republic of China (the “PRC”) and other overseas countries. Performance for the year: Revenue of the Group increased by 22.3% from RMB2,935.9 million in 2018 to RMB3,589.5 million in 2019. Profit attributable to equity holders of the Company increased by 20.8% from RMB222.4 million in 2018 to RMB268.6 million in 2019. Business Review In 2019, the international crude oil market as a whole experienced large fluctuations. However, the two major markets where the Group’s main business is located, namely, the Iraqi market and the domestic market, were less sensitive to oil price fluctuations, and oil and gas development activities remained active throughout the year. In the Iraqi market, the government actively promoted the building-up of oil and gas development capacity, bringing numerous fresh market opportunities. The Group’s integrated management project for the third largest oil field in Iraq has been operating smoothly for one and a half years. With high quality services, the Group was highly accoladed and supported by the customer, achieving a broad market prospect. In the domestic market, the three major oil companies actively responded to the call to significantly increase oil and gas exploration and development investment in the domestic market, and made every effort to increase the development of resources in major domestic oil and gas regions, especially natural gas development in Xinjiang in the northwest and the Sichuan shale gas development projects in the southwest, to improve oil and gas self-efficiency, reduce dependence on import, as well as ensure national energy security. Benefiting from this national development policy during the period, the Group’s new orders and revenue in the domestic market, especially in the Xinjiang natural gas market, increased significantly. In the Southwest market, the Group made full use of its technological strength and brand influence to create the “equipment alliance” cooperation model. Without having to invest in new capital expenditures, the Group’s market share for integrated drilling projects ranked first among private service companies. In other overseas markets, the Group achieved new breakthroughs in the Chad market in Africa during the year. In addition to the consistent winning of bids for traditional service projects, the Group successfully replicated the large-scale Iraqi oilfield management service project model, and won a contract from a new customer for integrated oilfield management projects. It proved that the Group has strong comprehensive strength in oilfield management projects, and further promoted the Group’s asset-light integrated oilfield management business model in the global market. Facing broad market opportunities, the Group continued to adhere to the operating principle of “cash flow and return on equity” as its core and achieve the high-quality growth business philosophy, proactively selected high-quality projects, and strictly followed the full-cycle management covering orders, procurement, operations and receivables collection, while continuing to strictly control capital expenditures. Throughout the year, the implementation of the Group’s core operating philosophy achieved great success, and performance indicators shown new breakthroughs. In addition to the increase in revenue and profits, the Group’s core operating indicator of “cash flow” has grown strongly, significantly exceeding the Group’s operating budget, and has achieved positive free cash flow in the first half of the year. For the full year, it increased significantly as compared with 2018 by 450.7%, reaching RMB238.8 million, the highest in the history of the Group. In terms of financial management, the Group proactively managed its existing debt and initiated the refinancing of its USD notes due on 5 December, 2020 one year in advance. On 2 December, 2019, the new three-year US$300 million notes due in 2022 were successfully issued and listed with a coupon rate of 7.50%. This not only eliminated in advance the liquidity risk that may be caused by the 2020 notes maturing, but also significantly reduced the coupon rate of the notes, which significantly save financial costs in the future. After the successful issuance of the notes, the Group further proactively managed financial costs and mobilized the equivalent RMB328.0 million of funds to repay some domestic short-term borrowings in advance, while retaining the unused credit facilities recovered after repayment of such borrowings ready to be utilized when in need at any time. As of 31 December, 2019, the Group had sufficient cash on hand of RMB2,422.9 million. Results and Performance In 2019, the Group’s total revenue was RMB3,589.5 million, an increase of RMB653.6 million compared with 2018, an increase of 22.3%. The Group’s operating profit was RMB719.6 million, an increase of RMB75.3 million compared with RMB644.3 million for the same period in 2018, an increase of 11.7%. Net profit was RMB282.4 million, an increase of RMB31.7 million compared with RMB250.7 million for the same period in 2018, an increase of 12.6%. Profit attributable to owners of the Company was RMB268.6 million, an increase of RMB46.2 million, an increase of 20.8% compared with RMB222.4 million of the same period in 2018. The net margin attributable to the equity holders of the Company was 7.5%, decreasing 0.1 percentage points from 7.6% for the same period in 2018. In 2019, the Group’s average turnover days of accounts receivable were 196 days, a decrease of 24 days compared to the same period last year; average inventory turnover days were 120 days, a decrease of 16 days compared to the same period last year; average payable turnover days were 80 days, a decrease of 21 days compared to the same period last year. Operating cash flow was RMB610.3 million, a significant increase of RMB190.3 million compared to RMB420.0 million of the same period last year. Geographical Market Analysis In 2019, revenue from the overseas market revenue was RMB1,906.1 million, an increase of RMB53.9 million or 2.9% over the RMB1,852.2 million of 2018. The overseas market accounted for 53.1% of the Group’s total revenue. In the overseas markets, Iraq’s market revenue was RMB1,419.8 million, an increase of RMB249.2 million or 21.3% compared with 2018’s RMB1,170.6 million, accounting for 39.6% of the Group’s total revenue; revenue from the other overseas markets was RMB486.3 million, a decrease of RMB195.3 million or 28.7% compared with 2018’s RMB681.6 million, accounting for 13.5% of the Group’s total revenue. Revenue in the domestic market was RMB1,683.4 million, an increase of RMB599.7 million or 55.3% compared with 2018’s RMB1,083.7 million, accounting for 46.9% of the Group’s total revenue; In 2019, the Group’s overseas market focused on the high-quality operations of the Iraqi market oilfield management projects and the development of other new projects, as well as focusing on the development of more premium overseas emerging markets. For previous projects in some overseas markets where customers had long repayment periods due to tight liquidity, the Group proactively gave up or suspended related projects based on the “cash flow-based” operating management philosophy, resulting in a decrease in the overall revenue from the other overseas markets. While proactively managing these markets, the Group has achieved important breakthroughs in the high value-added African Chad market. Not only has it continued to win conventional service projects, it has also successfully replicated Iraq’s large-scale integrated oilfield management project model and won the integration oilfield management services project from a new customer. On the whole, the Group’s key overseas markets have achieved healthy growth and breakthroughs, and annual revenue has increased by 2.9% compared with the same period last year. Key overseas market – Iraqi Market As of 31 December, 2019, the Group’s large-scale integrated oilfield management project in Iraq has been running smoothly for one and a half years. With high standards and high-quality management, it has helped customers improve the efficiency of oilfield operations, receiving high praise and support from the customer. During the celebration of the first anniversary that the oilfield organized in July, the chairman of the Board and the customer conducted an in-depth discussion on the long-term operation plan of the oilfield. The service scope of the oilfield is expected to further expand. The Group will continue to maintain high-quality services to help customers achieve efficient and high-quality development. The contract has a service model of “2 + 1” (a fixed period of 2 years since formal commencement, and the two parties may choose to extend the service period by 1 year by written agreement depending on the project situation). The fixed 2-year period stipulated in the contract will expire on 1 July, 2020. Due to the Group’s outstanding performance and the irreplaceable value created for the customer, the customer has issued a written confirmation to the Group in advance, confirming that the contract will be automatically renewed for one year after the expiry on 1 July, 2020. The Group is confident to continue to create value for customers and manage the project for a long time. For other projects, the Group’s operated in other oil fields with traditional competitive advantages, such as turn-key drilling projects, directional drilling and coiled tubing projects, operated smoothly and continued to gain new workload. In the fourth quarter, the Group successfully carried out pilot tests of low-modulus carbonate rock staged sand fracturing in the Halfaya oilfield. After fracturing, the daily output reached 5-10 times that of vertical wells in the same block, providing an efficient solution to fully utilize similar low-efficiency reservoirs in this oilfield, which is expected to be further promoted in the southern Iraq market in the future. Due to the customer’s development plan and process adjustments, the Group’s large-scale workover and completion project in the southern Iraqi oilfield will extend beyond the original contract period. The Group has renewed the contract and adjusted orders correspondingly in the fourth quarter according to contract commencement and subsequent workload. The project will continue to be carried out in 2020. In 2019, the Company obtained a total of approximately RMB2,137.2 million of new orders in the Iraqi market, an increase of approximately 22.8% compared to RMB1,740.5 million in the same period last year; the Company recorded revenue of approximately RMB1,419.8 million, an increase of approximately 21.3% from the RMB1,170.6 million in the same period last year. Other overseas markets – Global Emerging Markets In 2019, under the business philosophy of comprehensively focusing on “cash flow and return on equity” as the core growth target, the Group adopted proactive business quality management in emerging markets around the world and prudently conducted the market expansion on the premise of fully safeguarding risks. During the year, the different markets in the region have experienced declines and increases. For regional markets such as Ethiopia and Kazakhstan, as the cash flow of some projects could not meet the management requirements of the Group, the Group voluntarily gave up or suspended the projects, and revenue in these markets decreased. For the premium African Chad market, the Group continued to obtain high-quality asset-light service project orders and won the bid for integrated oilfield management service projects during the year. This project is a successful replication of the large-scale integrated oilfield management service project model in Iraq, which proves the Group’s strong strength and broad market prospects for promoting this type of oilfield management service project in emerging global markets. The project has successfully ignited the CPF torch in February, 2020, and officially entered into trial operation. During the year, the Group’s other overseas markets obtained a total of approximately RMB955.2 million of new orders, an increase of approximately 10.2% from RMB866.5 million of the same period last year; it recorded revenue of approximately RMB486.3 million, about 28.7% lower than the RMB681.6 million in the same period last year. Domestic market In 2019, the three major oil companies fully responded to the government’s call to formulate a “seven-year action plan” and went all out to increase domestic oil and gas exploration and development efforts to ensure national energy security. Thanks to the rapid development of the domestic market, especially the accelerated development of the northwest Xinjiang market and the southwestern Sichuan shale gas market, the Group’s business in the domestic market has achieved rapid growth. During the year, relying on the Group’s advanced high-end oil-based drilling fluids, drilling acceleration technology, coiled tubing and other superior technologies, the Group’s business in the northwest Xinjiang market grew rapidly, continuously obtaining high quality project orders, and achieved significant growth in new orders as compared with 2018. In the Southwest shale gas market, the Group, as one of the only two private service companies capable of conducting integrated turnkey drilling service projects for customers, has relied on its leading technologies and brand influence in domestic unconventional resource development projects, and adopted the “equipment alliance” strategy to fully mobilize equipment resources in the industry. In the drilling qualification tenders organized by customers this year, the Group won bids for 14 teams thanks to its mobilization of industry resources, the number of teams being the highest among private oil service companies. Facing the strong market demand, the Group adheres to the comprehensive management method based on “cash flow” to ensure high-quality growth. In the whole year of 2019, the company received new orders in the domestic market of approximately RMB2,763.0 million, increasing by about 90.8% compared with RMB1,448.2 million of the same period last year, and achieving significant increase in business quality than 2018. In 2019, it has recorded revenue of approximately RMB1,683.4 million, a significant increase of 55.3% from last year’s RMB1,083.7 million. Business Cluster Analysis In 2019, upstream capital investment increased and exploration and development was active. The Group’s drilling business continued to maintain rapid growth. During the reporting period, the Group’s drilling technology service cluster recorded revenue of RMB1,624.2 million, an increase of approximately 21.2% compared to the full year of 2018 and accounting for 45.2% of the Group’s full-year revenue in 2019. The well completion business of the Group has also grown steadily. In 2019, revenue from the well completion cluster was RMB836.0 million, an increase of approximately 12.7% compared to the full year of 2018, accounting for 23.3% of the Group’s total revenue. In terms of oil production services, the Group’s large-scale integrated oilfield management project in the Iraqi market has been operating smoothly. The oil production services cluster recorded revenue of RMB1,129.3 million, an increase of approximately 32.2%, accounting for 31.5% of the Group’s overall revenue. In 2019, the Group’s drilling technology cluster recorded revenue of RMB1,624.2 million, an increase of 21.2% from RMB1,339.9 million in 2018. The increase in revenue of this cluster was mainly due to the increase in capital expenditures of customers for new production capacity, and the investment in new well development increased significantly. Analysis of product lines in this cluster: 1) Integrated drilling services: during the year, the Group’s integrated drilling projects were actively carried out in the Iraqi market and the shale gas market in southwest China. However, based on the proactive management of “cash flow”, the Group suspended Kazakhstan-related projects whose cash flow cannot meet management requirements. During the reporting period, the revenue from integrated drilling services was RMB367.7 million, which was approximately 14.1% lower than RMB428.0 million in 2018. 2) Directional drilling services: the Group’s directional drilling services have been carrying out with high quality in Iraq, Northwest China, Xinjiang, and Southwest Shale Gas, and other markets. Due to the suspension of some projects in other overseas markets by the Group, directional drilling services recorded revenue of RMB186.3 million, a decrease of approximately 9.3% from RMB205.4 million of the same period last year. 3) Drilling fluid services: the Group’s oil-based muds and high-performance water-based muds serve the Group’s traditional superior services in the domestic northwest Xinjiang market. During the year, the development of the northwest Xinjiang market picked up pace, and the business volume of this product line increased significantly. In 2019, the Group’s drilling fluid services recorded revenue of RMB200.1 million, a significant increase of 46.6% from RMB136.5 million of the same period last year. 4) Land drilling services: in overseas, drilling projects in Iraqi and Pakistani markets operated smoothly; while drilling business in the Erdos market in China and other markets has further increased. During the reporting period, land drilling services recorded revenue of RMB366.6 million, an increase of 20.7% from RMB303.8 million of the same period last year. 5) Oilfield waste management services: in 2019, this product line has recorded revenue of RMB16.8 million, a decrease of 53.8% from last year’s RMB36.4 million. 6) Drilling tool rental and services: with the increase of the overall drilling business volume, customers have maintained strong demand for drilling tools, which has promoted the substantial growth of drilling tool rental and services businesses. During the reporting period, the product line recorded revenue of RMB305.6 million, a significant increase of 158.1%from RMB118.4 million of 2018. 7) Oil production facilities inspection and evaluation services: in 2019, the demand for this product line business further expanded. During the reporting period, the product line recorded revenue of RMB169.9 million, a significant increase of 56.4% from RMB108.6 million of the same period last year. The EBITDA of the drilling technology cluster increased from RMB624.9 million in the same period last year to RMB684.5 million in 2019, an increase of 9.5%. In 2019, the EBITDA margin was 42.1%, a decrease of 4.5 percentage points from the 46.6% of the same period last year, mainly due to the Group’s cash-flow-centric operation policy, and controlling capital expenditure while having a substantial increase in business volume. For large equipment such as drilling rigs required for projects, the Group provides services to customers by cooperating with third parties. Despite sharing profits with such third parties, the Group has achieved better cash flow and higher return. Well completion cluster In 2019, the Group’s well completion business grew steadily. During the reporting period, the revenue from the completion technology cluster was RMB836.0 million, an increase of 12.7% from last year’s RMB741.8 million. Analysis of product lines in this cluster: 1) Well completion integration: during the reporting period, the well completion integration product line maintained stable operations, and the workload was basically flat compared to the same period last year. In 2019, it recorded revenue of RMB200.4 million, a decrease of approximately 7.4% from RMB216.5 million of the same period last year. 2) Pressure pumping service: during the year, the Group mainly provided pressure pumping services to customers in the southwest shale gas market and the Erdos market. Benefiting from the overall acceleration of domestic capacity building, pressure pumping services recorded revenue of RMB274.0 million during the reporting period, a significant increase of 58.7% from RMB172.6 million of the same period last year. 3) Coiled tubing service: during the year, the Group continued to provide customers with high-quality coiled tubing services in overseas Iraqi markets, domestic northwest Xinjiang and southwest shale gas markets. Due to the decrease in other overseas market projects, in 2019, the product line recorded revenue of RMB200.8 million, a 14.4% decrease from RMB234.7 million of the same period last year. 4) Fracturing/acidizing technique and chemical materials: in 2019, the Group’s low-modulus carbonated rock segmented sand fracturing technology was successfully tested in Iraq’s Halfaya oil field. It is expected to be further promoted in the entire Iraqi market in the future. Domestic market operation volume is stable. During the reporting period, the product line recorded revenue of RMB47.5 million, an increase of 7.5% from RMB44.2 million of the same period last year. 5) Gravel packing service: the product line recorded revenue of RMB112.6 million in 2019, a significant increase of 52.6% from RMB73.8 million in the same period last year. The EBITDA of the well completion cluster increased from RMB329.3 million in the same period last year to RMB352.2 million in 2019, an increase of 7.0%. In 2019, the EBITDA margin was 42.1%, a decrease of 2.3 percentage points from the 44.4% of the same period last year, mainly due to the Group taking consideration of cash flow and reducing some projects in overseas emerging markets with higher profit margins but a poor cash flow outlook, while the dramatically increasing domestic market pressure pumping projects with relatively low profit margins. Production services cluster In 2019, the revenue of the production services cluster was RMB1,129.3 million, an increase of 32.2% from RMB854.2 million in the same period last year. The Majnoon oilfield, whose management the Group took over in the Iraqi market, maintained high-quality operations during the year. In addition, the Group has secured new orders for integrated oilfield management services in the African Chad market. It has been successfully put into trial production in February 2020, and will contribute towards stable growth of the cluster in the future. Analysis of product lines in this cluster: 1) Production operation service: in 2019, the integrated oilfield management service project undertaken by the Group for the large-scale oilfield in southern Iraq, the Majnoon oilfield, maintained stable operation. Since the formal takeover of the oilfield management on July 1, 2018, the Group has smoothly operated the oilfield for more than one and a half years, the oilfield operations have been carried out in an orderly manner, and the production capacity has gradually increased. The Group has also received high praise from customers. Besides, the Group successfully won the bid for oilfield management projects in the African Chad market. During the reporting period, production operation services recorded revenue of RMB788.5 million, an increase of 30.3% from RMB605.1 million of the same period last year; 2) Workover service: during the reporting period, affected by adjustments to customer operation plans in some regional markets, this product line recorded revenue of RMB283.2 million, an increase of 31.8% from RMB214.8 million of the same period last year; 3) Oil tubing and casing and anti-corrosion technology：during the reporting period, the product line recorded revenue of RMB57.6 million, a significant increase of 67.9% from RMB34.3 million of the same period last year; The EBITDA of the production services cluster increased from RMB360.8 million in the same period last year to RMB468.7 million in 2019, an increase of 29.9%. The EBITDA margin of the cluster in 2019 was 41.5%, which was a 0.7 percentage point decrease from the 42.2% of last year. The decline in the EBITDA of the cluster was mainly due to increased revenue contribution from large oilfield management projects during the year, and that the margin of these projects is slightly lower than previous service projects, but such projects are “asset-light” management projects, thus the Group does not need capital expenditure, and the projects have a stable and positive free cash flow, which contribute to better project returns and cash inflows for the Group. Strategic Resources Alignment In 2019, although the overall business volume of the Group has increased significantly, it continued to strictly control its new capital expenditures in accordance with the requirements of the “asset-light” business model and the comprehensive management control requirements with “cash flow” as its core. Non-essential investment requirements are met by leasing or allocating resources from partners. The annual net capital expenditure of RMB101.9 million was much lower than the budget set by the Group, and an increase of 3.8% compared to the RMB98.2 million in 2018. Prospects: In the first quarter of 2020, the novel coronavirus epidemic spreads around the globe, which greatly affected the global economic growth. Despite this, due to the failure of achieving an agreement of production cut between OPEC and Russia, Saudi Arabia announced a sharp cut of sales price of crude oil and a plan of huge raise in production. Global oil price slumped immediately after such change, and the global oil and gas industry entered to a new round of severe challenge. The Group regards this overlap and dual influence of global recession and running of low oil price would largely increase the uncertainty in the market, and lead to higher risks of business operation. Under such arduous market circumstances, the Group will continuously and more firmly execute its operating and management principle of taking “cash flow” and “ROE” as the core, increase its capital turnover, tighten the control of capital expenditure and lower its costs through every measure. It would vigorously advance its information management reform to improve the management efficiency, and meanwhile promotes the execution of the restricted stock incentive plan to make higher consistency of interests between the Group and its employees and encourage the staffs to proactively grow together with Group, continuous strive for best results, tackling the difficulties altogether and actively pursuing new breakthroughs, to ride out the industry downturn. In terms of markets, in the Iraqi market, the Group will continue to provide customers with integrated management services in the Majnoon oilfield to help customers quickly expand production capacity while keep a close contact with customers. The Group has received written confirmation from the customer in advance that it will automatically renew the 2-year contract after its expiry on 1 July, 2020 for one year. The Group is confident to rely on its quality management to continue to create value for customers and strive to provide long-term and continuous management services for the oilfield. In addition, the Group will continue to vigorously promote the integrated oilfield management services, and endeavours to make new breakthroughs in the Iraqi market; in other overseas markets, the Group will further control risks, and while ensuring financial security, strengthen cooperation with the Belt and Road policy financial institutions, and seek more opportunities to cooperate with international oil companies and national oil companies, make full use of the successful experience of oilfield management projects on hand, strive for more project orders related to customers’ routine operational expenditure, and achieve diversified business development. In the domestic market, the Group will continue to fully cooperate with customers’ needs, give full play to its technological advantages in the oil and gas development market, especially the natural gas market and unconventional energy markets, and provide high-end high-quality comprehensive integrated technical services to help customers quickly increase production capacity and maximize their oil and gas resource value. In terms of product, technology and service capabilities, the Group will promote the construction of the full-round products system centred along geological engineering service and provide the customers with precise technical services which combined the geology research and engineering services to help customers develop the reservoir accurately and efficiently. While focusing on the development of oilfield management services and oilfield technology services as two major industries, it is also actively developing two small businesses but high in terms of return on capital: inspection and asset leasing services. In terms of strategic resources alignment, with positive free cash flow and high return on equity as its core goals, the group will resolutely put an end to inefficient investments and achieve the optimal allocation of resources. In terms of technology, in response to customers’ needs for efficient development of resources, the group shall independently research and develop geo-technology-focused sweet-spot-finding technologies and oilfield management technologies, and combine these technologies with engineering services to improve engineering efficiency by technical means in terms of conventional equipment, the group will continue to adhere to the “asset-light” operating model to achieve a higher return on equity, strictly control capital expenditures, and meet the business demands for equipment and assets by leasing and outward cooperation. In terms of human resources, a partnership sharing mechanism has been established. Employee shareholding plans have been adopted to encourage employees to fully participate in corporate governance and maximize their incentives. In 2020, the Group plans to actively implement the plan. In terms of finance, the group will continue to focus on the operational management core on free cash flow and return on equity, and pursue long term high-quality high-speed growth. The group will strengthen the group’s cooperation with financial institutions such as commercial banks, and while ensuring sufficient liquidity, and continue to obtain positive free cash flow through the improvement of business quality and operating efficiency.

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