China Oilfield Services Limited H [2883.HK] · China Oilfield Services Limited -H ... Any rig...

1

China Oilfield Services Limited - H [2883.HK]

By leveraging the ability to offer integrated oilfield services for offshore applica-tions; low cost of financing; a unique link with parent CNOOC; coupled with strong management execution; China Oilfield Services Limited (COSL) has suc-cessfully established a strong market position in offshore China. Most important-ly, COSL has built a deep-water capability, which will help the company grasp the huge and growing opportunities in the South China Sea. We forecast COSL to deliver solid earnings growth of 23%/14%/8% in 2014E/2015E/2016E, and any new rigs added will offer further upside to our estimates. We believe the current valuation of 8x 2015E, after a share price retreat of 11% since early this month, offers a good entry opportunity. Initiate with BUY and target price of HK$25 (based on 10x 2015E PER, five-year average forward multiple).

COSL a beneficiary of China’s oil and gas activities in South China Sea.

COSL has gradually built a deep-water capability by acquiring more high-end semi-submersible rigs. COSL reported strong revenue growth and margin expansion in the well services segment in 1H14, driven by integrated deep-water projects (two wells) in the South China Sea. We see huge potential in the South China Sea, given the abundant oil and gas reserves.

Global oil capex slowdown not a big concern; CNOOC’s capex growth

the key driver. There have been concerns that the global oil capex slow-down (4% growth in 2013) will exert downward pressure on oilfield services activities, but we argue that 66% of COSL’s revenue is generated from the China market, where CNOOC’s capex growth of 30%+ in 2014E will continue to drive COSL’s growth. Also, of the four semi-sub rigs working overseas, three are under long-term contracts which will help mitigate day-rate volatility.

Capacity growth the key driver; additional rigs offer further upside.

COSL plans to add seven drill rigs (five jack-ups and two semi-subs) through charter, build and purchase between 2014E and 2016E. COSL added three jack-ups in 1H14 and is expected to sign a contract for its new semi-sub (COSL Prospector) in 1Q15E. We believe COSL will add more capacity over the next few years and we have assumed another two jack-ups in 2016E. Any rig additions will offer further upside to our current estimates.

Risks: (1) Decline in oil and gas price; (2) operating risk in disputed water;

(3) customer concentration.

Wayne Fung, CFA —Analyst

(852) 3698-6319

[email protected]

Harry He—Research Assistant

(852) 3698-6320

[email protected]

John Mulcahy—Head of Research

(852) 3698-6889

[email protected]

Oilfield Services Sector Strong demand offshore China supports multi-year growth;

Valuation discount not justified; Initiate with BUY

BUY

Close: HK$20.45 (Sept 22, 2014)

Target Price: HK$25.00 (+22%)

Share Price Performance

Market Cap US$13,877m

Shares Outstanding 4,771.6m

Auditor Deloitte

Free Float 33%

52W range HK$17.24-26.00

3M average daily T/O US$31m

Major Shareholding CNOOC Group

(50.5%)

September 23, 2014

Key Financials (RMB m) 2012 2013 2014E 2015E 2016E

Revenue 22,279 27,527 34,365 38,719 42,418

Change (YoY) 20% 24% 25% 13% 10%

EBIT 5,619 7,648 10,003 11,124 11,915

Change (YoY) 13% 36% 31% 11% 7%

Core net profit 4,463 6,716 8,281 9,459 10,168

Change (YoY) 13% 50% 23% 14% 8%

Core EPS (RMB) 0.993 1.494 1.740 1.982 2.131

Change (YoY) 13% 50% 16% 14% 8%

ROE 15% 19% 19% 18% 17%

Net debt/equity 61% 55% 30% 19% 10%

PER (core earnings) (x) 16.7 10.9 9.4 8.2 7.6

Dividend yield 1.9% 2.8% 3.2% 3.7% 3.9%

PBR (x) 2.3 2.0 1.6 1.4 1.2

EV/EBITDA (x) 10.7 8.5 6.8 5.9 5.2

Sources: Company, CGIHK Research estimates

2

1) South China Sea offers great potential for oilfield services demand

China National Offshore Oil Corp. (CNOOC), COSL’s major customer, owns most of

China’s offshore oil and gas reserves. CNOOC’s oil and gas reserves reached 3.06

bn barrels and 6,323 bn cubic feet (ft3) respectively in 2013. Bohai has long been the

major oil producing region in offshore China, accounting for 44%/35.5% of CNOOC’s

total output/oil reserves in 2013 respectively. In the South China Sea, CNOOC’s nat-

ural gas reserves reached 3,619.6 bn ft3, accounting for 57.2% of its total reserves in

2013. We see the South China Sea as a major source of drilling demand for COSL.

The US Energy Information Administration (EIA) has estimated the South China Sea

contains approximately 11bn barrels of oil and 190 trillion ft3 of natural gas in proved

and probable reserves in 1H2013.

As of end-2013, CNOOC’s South China Sea proved oil and natural gas reserves ac-

counted for only 45% and 24% of China’s total reserves in the South China Sea as

estimated by EIA in 2013, implying huge potential for CNOOC’s exploration activities,

which we believe will directly benefit COSL. As of end-2013 CNOOC had proved oil

and gas reserves with a life of over 10 years, which will support COSL’s long-term

growth.

South China Sea has huge oil and gas reserves.

Investment positives

Figure 1: Comparison of CNOOC proven reserves to EIA estimated proven and probable re-

serves in South China Sea

Sources: CNOOC, EIA, CGIHK Research

(Oil in b barrels & gas in tcf) China (EIA) South China Sea Total (EIA)

EIA estimated oil reserves 1.3 11.0

CNOOC oil reserves 0.6 -

CNOOC % of EIA estimate 45.0% 5.3%

EIA estimated gas reserves 15.0 190.0

CNOOC gas reserves 3.6 -

CNOOC % of EIA estimate 24.1% 1.9%

3

Figure 2: CNOOC proved oil and gas reserves and reserve life

Sources: CNOOC, CGIHK Research

CNOOC to open 33 offshore blocks; South China Sea the key focus

CNOOC announced recently that it will open 33 offshore blocks to foreign oil com-

panies for joint development (figures 3 & 4). The blocks cover an area of 126,108

sq km, located in the Yellow Sea, East China Sea and South China Sea. We note

that 17 blocks (out of the 33) are located in the South China Sea (44% in terms of

km2), illustrating China’s strategic focus on the South China Sea oil and gas devel-

opment. We believe this will help drive demand for offshore oilfield services and

will continue to benefit COSL.

1,246 1,424 1,436 1,456 1,457 1,490 1,564 1,578 1,668 1,719

1,969 2,181

3,060 3,248

3,548

4,154

4,647

5,431

6,232

6,223

5,623

5,944 5,945

5,627

6,005

6,323

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Proved oil reserves (m barrels) (RHS) Proved gas reserves (billion cubic ft) (RHS)

Oil reserve life (yrs) (LHS) Gas reserve life (yrs) (LHS)

4

Figure 3: CNOOC’s 2014 open blocks in offshore China Sources: CNOOC, CGIHK Research

5

AREA WATER DEPTH

（km2） (m) 2D(km) 3D(km2)

25/12 6947 50-60 2900

33/02 1784 80-100 6900 2

41/14 6964 85-105 9100 90 5

04/02 8182 50-80 2300 1

24/17 2674 15-35 2200 3

14/18 10373 20-60 8100 1

11/34 9666 20-60 9300 554 6

19/11 14826 20-60 11000

14/21 5271 50-90 3606 2

16/15 2312 100-200 4210 1054 5

16/28 2070 150-310 4000 768 3

27/04 3295 70-110 8731 1238 6

28/06 2347 90-100 4465 273 6

28/16 1764 105-390 4990 707 9

29/31 1265 180-400 2757 1265 3

29/11 1808 300-600 3553 165 4

29/24 4645 700-1500 4064 4645 2

41/12 5993 500-1500 6541 2123 2

42/10 5482 1000-2000 7328 4283 2

43/08 7413 1500-3000 8609 1420 1

44/07 5240 1500-3000 3279

55/05 6508 1000-3000 7029

15/33 155 80-90 666 155 4

16/25 50 100-200 50 3

42/12 353 500-1200 353 1

22/16 766 40-80 7040 4

22/11 29 40 3Liushagang Ⅲ of

Paleogene

YINGGEHAI BASIN 50/13 1630 70-90 5020 754 1

53/32 1070 1800-2200 2540 356

53/36 1073 2100-2500 2300 1073

64/05 1000 1000-1800 4040

64/03 2237 200-1300 9190 1765 1

64/26 916 1000-1375 3590 715

TOTAL 126108 159348 23806 80

PEARL RIVER MOUTH BASIN (EAST)

QIONG DONGNAN BASIN

BEIBUGULF BASIN

BASIN BLOCKSEIMIC ACQUIRED

Information of 2014 Open Blocks Offshore China

WELLS

DRILLED

HORIZON FOR

OPEN

EAST CHINA SEA BASIN

SOUTH YELLOW SEA BASIN

Figure 4: China’s 2014 open blocks in offshore China

Sources: CNOOC, CGIHK Research

6

2) Deep-water development a long-term growth driver

According to the South China Sea water depth map and the proved and probable

reserves of oil and natural gas shown in figure 5 & 7, most current reserves exist in

shallow water basins that are distributed along the coastline of the South China Sea .

Conversely, exploration in the deep water area is limited.

Exploration has been difficult in deep waters in the South China Sea due to extreme

weather such as typhoons, complex geological conditions, much higher requirements

for risk management, drilling equipment and technologies. Up to now, exploration and

development in the deep waters of the south is still at an early stage and we believe

this implies huge potential for COSL.

Indeed, in 2008 CNOOC announced that it planned to build an offshore “Daqing Oil-

field” in the deep water area of the South China Sea with annual production capacity

of ~50m tons oil equivalent by 2020. Total investment of RMB200bn will be invested

over the subsequent 10-20 years. Besides, CNOOC has announced that it will gradu-

ally establish exploration capacity in water depths of 1,500-3,000m.

COSL has HYSY 981 (the most advanced 6th generation semi-sub in China with

working water depth of 10,000ft; invested by CNOOC and currently operated and

managed by COSL) and three other semi-subs of over 4,600ft working water depth.

Through the gradual increase of deep-water capacity, COSL has significantly in-

creased its deep-water revenue from 18% in 2013 to 24% in 1H14.

CNOOC recently announced HYSY 981 has made its first deep-water gas-field dis-

covery in the South China Sea. The gas-field, named Lingshui 17-2, around 150km

south of Hainan Island, is an ultra-deep water gas-field at an average operational

water depth of 1,500 meters. According to Xie Yuhong, a CNOOC manager, the well

would produce 56.5m ft3 of gas per day, equivalent to about 9,400 barrels of liquid oil

per day, the highest daily flow of all CNOOC's gas wells during testing. We believe

this will continue to offer huge opportunities for COSL.

CNOOC has long-term strate-gic E&P plan focusing on South China Sea.

HYSY981 just discovered an ultra-deep water gasfield.

7

Figure 5: South China Sea oil and natural gas proved and probable reserves map

Sources: EIA, CGIHK Research

Figure 6: COSL’s semi-submersible rigs working depth Sources: Company, CGIHK Research

10,000

5,000 5,000 5,000 4,600

2,500 2,500 2,5001,500 1,500

1,000 1,000

Unit: ft

8

Figure 7: Water depth map of the South China Sea Sources: Encyclopedia Britannica, CGIHK Research

9

3) Slowdown of global spending not a concern; CNOOC capex growth the key driver

E&P capex growth of global oil majors slowed to 4% in 2013 from ~20% between 2010

and 2012 (figure 8). There have been concerns over the potential global capex slow-

down over the coming years due to higher capex discipline of some oil majors as well as

project delays, which could impose downside pressure on global drilling day rates.

While COSL has gradually increased its overseas revenue portion from 6% in 2004 to

34% in 1H14, we believe the impact on COSL is limited, given COSL’s main source of

revenue flow is still coming from China market (66% in 1H14). CNOOC maintained its

spending budget of RMB105-120bn for 2014E during the 1H14 results presentation,

suggesting 30%+ year-on-year (YoY) growth, which we believe will help COSL to main-

tain resilient growth with good visibility.

China market accounted for 66% of COSL’s revenue in 1H14

Figure 8: Global oil and gas capex on E&P (Excl. of acquisition)

Sources: Bloomberg, CGIHK Research

56,533

73,424 77,48192,672

104,720

139,016

177,500

212,313

260,148

221,906

268,215

336,822

402,562

419,825

41.2%

29.9%

5.5%

19.6%

13.0%

32.8%

27.7%

19.6%

22.5%

-14.7%

20.9%

25.6%

19.5%

4.3%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Oil and gas industry total Capex (Excl. of Acquisitions) (Unit: US$m) (RHS) YoY%

10

-1%

57%

21%

55%

29%39%

17%

35%

17%

-33%

30%

48% 47%

35%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

CNOOC E&P capex (RMB m) Change (YoY)

Figure 9: CNOOC’s capex


94%91%

83%82%

75%78%

75% 72%69% 67%

6%9%

17%18%

25%

22%25%

28% 31%33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

International (RMB m) (LHS) Domestic (RMB m) (LHS)

% of domestic revenue (RHS) % of international revenue (RHS)

Figure 10: COSL’s revenue breakdown by region

Sources: Company, CGIHK Research

11

Resilient jack-up day rate through commissioning of high specification rigs

Over the past 10 years COSL gradually added more high-specification jack-ups. In 2008

COSL acquired AWO (a Norwegian drilling company now known as COSL Drilling Eu-

rope AS) and immediately raised the average specification of its rig fleet. This drove

COSL’s day rate which has since then gradually exceeded the market day rate of jack-

ups with <250 feet water depth (figure 11).

Currently, COSL has 22 jack-up rigs (out of total 33) which are classified as high-end

rigs (working water depth of 300 feet or above). In future, with more high-specification

drill rigs coming on line, we expect COSL’s day rate will continue to move closer to the

day rate for deeper water-depth rigs.

High specification jack-up rigs narrow COSL and global day-rate gap.

Figure 11: COSL’s Jack-ups day rate vs. market day rates

Sources: Bloomberg, COSL, CGIHK Research

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jackup IC 300+ WD COSL JU Avg. Jackup IC <250 WD

US$

12

Not all semi-subs are exposed to the potential weakness of day rate

In the international market, COSL has three semi-subs working for Statoil in the North

Sea. COSL has secured 8-year contracts with Statoil for COSL Innovator and COSL

Promoter (until 2020 and 2021 respectively). While the contracted day rates are sub-

ject to adjustment according to the latest oil price and local inflation rates, we believe

it can still help mitigate against volatile market day-rates in the foreseeable future.

Besides, COSL Pioneer renewed its contracts in late 2013 with Statoil till August

2016. Only Nanhai VI (whose current operator is Santos, an Australian upstream

E&P company; contract expires in April 2015); COSL Prospector (contract still under

negotiation); and HYSY982 (expected to be commissioned in 2016E) are exposed to

potential softness in deep-water market day rates.

In China, HYSY981, Nanhai II, V, VII, VIII and IX are currently working for CNOOC.

We expect day rates will be subject to less volatility given that the customer is

CNOOC.

Long-term contracts signed with Statoil

Figure 12: COSL’s Semi-subs day rate vs. market day rates

Sources: Bloomberg, COSL, CGIHK Research

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Semi-sub 5000-8000 WD COSL Semi-Subs Avg. Semi-sub 1500-5000 WD

US$

13

4) Capacity growth to help withstand the potential day rate weakness

Over the past decade, COSL has gradually built up a sizeable fleet of drill rigs. As of end

-June 2014, COSL had a total fleet of 44 drill rigs consisting of 33 jack-ups and 10 semi-

subs. We believe capacity addition is the key growth driver for COSL. COSL is adopting

a flexible approach to add capacity through “build”, “charter” and “purchase”.

Jack-up drill rigs expansion

Number of jack-up rigs more than tripled between 2002 and 2013. COSL had only 9

jack-ups in 2002. During 2002 to 2007, 3 jack up rigs, HYSY 935,931 and 941 were de-

livered into the COSL fleet via dry leasing, second-hand buying and construction respec-

tively, which are all high-end specifications jack-up rigs with working water depth larger

than 300ft. In 2008, COSL had 6 jack ups added after the acquisition of AWO, a Norwe-

gian drilling company which is now known as COSL Drilling Europe AS, “CDE”, expand-

ing the total fleet to 19 jack ups (including HYSY 942 delivered in 2008) and 3 semi-

subs. Between 2009 and 2013, COSL had relatively stable capacity additions with an

average of around two jack ups annually.

We expect seven new jack-ups between 2014E and 2016E. In 1H14, three new jack-

ups are added by consecutive operating lease. Another two new jack-ups HYSY 943

and HYSY 944 are scheduled to be delivered in September 2015 and October 2015

respectively, taking the total number of jack-ups to 35 by end-2015E. Although COSL

currently has no plans on new built jack-up delivery in 2016, we assume two more high-

end jack-ups to be added through chartering or second-hand purchase in 2016E, which

will take the total number of jack-ups to 37 by end-2016.

Semi-submersible drill rigs expansion

COSL had only three semi-subs in 2002. It was not until 2010 that the fourth semi-sub

(COSL Pioneer) was delivered. Starting from 2010, COSL expanded its semi-sub fleet

rapidly, taking the total number of semi-subs to 10 by end-2013.

According to rig delivery schedule of COSL, COSL Prospector is expected to be deliv-

ered in early 2015 and HYSY 982 to be delivered in August 2016, taking the total num-

ber of semi-subs to 12 by end-2016.

Figure 13: COSL’s rig fleet growth


3 3 3 3 3 3 3 34

5

810

11 1112

910

11 1112 12

19

2325

27 27

30

3335

37

0

5

10

15

20

25

30

35

40

Nos. of COSL Semi-subs Nos. of COSL Jack ups

14

5) Well services a new growth driver over the medium term

COSL’s well services segment performance was hit by the oil spill incident at the

Penglai 19-3 oilfield in 2011 (The oil spill incident at Penglai 19-3 oilfield was a series

of oil spills that began on June 4, 2011 at Bohai Bay. The project was 51% owned by

CNOOC and 49% owned by ConocoPhillips and ConocoPhillips was the operator).

However, COSL continued to explore the overseas market as well as domestic deep

water area, increasing unconventional oil and gas services work volume, as well as

further enhancing its oilfield services technologies like drilling fluids and cementing in

deep water. After about two years’ development, meaningful revenue growth started

in 2H13 (figure 14). In 1H14, COSL reported 50% YoY increase in well services reve-

nue with significant EBIT margin expansion of 11.1ppt to 23.5%, resulting in a 185%

increase in EBIT, helped by a deep-water integrated project (two wells) in the South

China Sea for CNPC.

According to management, COSL is now able to provide 60% in-house supply of

chemical-related products and tools for its well services. Besides, COSL achieved

100% market share in some specific service lines like well completion and production

enhancement in China waters. We believe the well services segment is entering a

new growth stage, underpinned by continuous enhancement of high-end service

technologies and increasing capacity in deep-water areas, in particular in the South

China Sea. While we expect EBIT margin in 2H14E will be lower than 1H14 as a re-

sult of the lack of integrated projects, we believe the overall growth trend remains

favourable and we see more integrated projects possible in 2015E.

COSL completed integrated deep-water project (2 wells) in 1H14—boosted EBIT margin significantly.

Figure 14: Well services historical revenue


68.9%

3.7%9.4%

29.4%

47.4%

71.5%

32.0%

-22.4% -22.5%

5.3%

24.4%21.9%26.2%

38.7%

50.4%

-40%

-20%

0%

20%

40%

60%

80%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Well services revenue (RMB m) - LHS Growth (YoY)

15

Figure 15: Well services historical EBIT Sources: Company, CGIHK Research

6) Low cost of financing a key to leveraged expansion

Due to its unique SOE background, COSL has been able to obtain low-cost fi-

nancing from banks and bond issuance. The weighted-average borrowing rate

was 1.61% (largely LIBOR-based) while the tranches of bonds issued in 2007 and

2012 carried interest rates of 4.48% and 3.38% respectively. Low cost of financing

is important to COSL due to its capital-intensive business model.

17.8%16.7%

21.5%

14.3%

20.1%

14.9%

22.7%

14.8%

17.3%

6.9%

15.5%

8.5%

12.4%

9.5%

23.5%

0%

5%

10%

15%

20%

25%

0

100

200

300

400

500

600

700

800

900

1,000

Well services EBIT (RMB) - LHS EBIT Margin

16

Earnings forecast

COSL projected to deliver core earnings growth of 23%/14%/8% in

2014E/2015E/2016E; we see additional upside potential when COSL raises

capacity

We expect drilling revenue to grow 19% YoY in 2014E (Excluding the one-off gain

of ~RMB400m from the settlement of a standby fee dispute between COSL and

Statoil) and 10% YoY in 2015E, while we expect some slowdown in 2016E (4%).

We assume the day rate of jack-ups to increase further between 2014E and

2015E due to commissioning of more high-spec drill rigs. For semi-subs, we ex-

pect the day rate to stay largely stable between 2014E and 2015E, due mainly to

the potential increase in global supply. Despite the slowdown, any new capacity

additions will offer additional upside to our estimates.

In 1H14, drilling segment EBIT margin reached 42%. Excluding the one-off gains

from Statoil, the adjusted EBIT margin for this segment was ~39%, largely stable

from 1H13.

We believe the growth of well services will become a new earnings driver in the

foreseeable future. We forecast this segment to deliver revenue CAGR of 25%

between 2014E and 2016E. Besides, we expect margin expansion will continue.

Management revealed during the 1H14 post-result meeting that this segment will

be able to deliver above-average growth rates (vs. the past).

We project total revenue to grow 25%/13% in 2014E/2015E. EBIT margin should

be maintained at a resilient level of 28%-29% between 2014E and 2016E.

COSL raised RMB4.6bn through a share placement early this year, which helped

enhance its balance sheet. We estimate the net debt-to-equity ratio to drop to

29% by end-2014E from 55% in 2013. We believe this will enable COSL to grasp

acquisition opportunities, offering earnings upside from our current estimates.

Management guided that capex this year will be ~RMB8.5bn. For 2015E-2016E,

capex is expected to be lower than 2014E.

17

Figure 16: Key assumptions for COSL


Key operating assumptions 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Revenue from drilling (RMB m) 5,920 9,892 9,327 9,515 11,252 14,665 17,827 19,115 19,873

Change (YoY) 51.0% 67.1% -5.7% 2.0% 18.3% 30.3% 21.6% 7.2% 4.0%

Drilling EBIT 2,118 2,748 3,505 3,430 3,714 5,765 7,131 7,550 7,790

EBIT margin 35.8% 27.8% 37.6% 36.0% 33.0% 39.3% 40.0% 39.5% 39.2%

No. of Jack up rigs 19 23 25 27 27 30 33 35 37

Average Jack up day rate (US$) 116,000 120,000 113,000 107,000 108,000 117,000 130,000 135,863 134,584

Change (YoY) 48.1% 3.4% -5.8% -5.3% 0.9% 8.3% 11.1% 4.5% -0.9%

No. of operating days of Jack ups 4,556 7,089 7,933 8,692 9,244 9,654 10,478 11,464 12,353

Change (YoY) 7.8% 55.6% 11.9% 9.6% 6.4% 4.4% 8.5% 9.4% 7.7%

Jack ups Calendar Day Utilization Rate 91.1% 94.7% 94.9% 93.4% 93.5% 95.8% 93.0% 94.0% 94.0%

No. of Semi-sub rigs 3 3 4 5 8 10 11 11 12

Average Semi-sub day rate (US$) 179,000 188,000 194,000 261,000 298,000 323,000 323,000 323,000 318,916

Change (YoY) 25.8% 5.0% 3.2% 34.5% 14.2% 8.4% 0.0% 0.0% -1.3%

No. of operating days of Semi-subs 1,098 1,066 1,003 1,178 1,712 3,033 3,631 3,895 3,987

Change (YoY) 1.7% -2.9% -5.9% 17.4% 45.3% 77.2% 19.7% 7.3% 2.4%

Semi-subs Calendar Day Utilization Rate 100.0% 97.4% 91.6% 95.5% 91.6% 95.0% 98.0% 97.0% 97.0%

Revenue from well services (RMB m) 2,733 4,417 4,327 3,950 4,858 6,475 9,195 11,033 12,688

Change (YoY) 20.4% 61.6% -2.0% -8.7% 23.0% 33.3% 42.0% 20.0% 15.0%

Well services EBIT 471 743 814 449 562 694 1,655 1,986 2,284

EBIT margin 17.2% 16.8% 18.8% 11.4% 11.6% 10.7% 18.0% 18.0% 18.0%

Revenue from MS&T (RMB m) 1,614 2,171 2,346 2,534 2,945 3,251 3,604 4,029 4,514

Change (YoY) 17.5% 34.5% 8.0% 8.0% 16.2% 10.4% 10.8% 11.8% 12.0%

MS&T EBIT 491 654 542 518 547 464 343 544 609

EBIT margin 30.4% 30.1% 23.1% 20.5% 18.6% 14.3% 9.5% 13.5% 13.5%

No. of total vessels 75 80 75 75 72 69 75 80 87

No. of operating days of self-owned vessels 23,626 27,702 26,769 25,650 24,195 23,916 25,924 27,652 30,072

Self-owned Vessels Calendar Day Utilization rate 94.8% 93.4% 94.7% 94.6% 91.7% 93.9% 94.7% 94.7% 94.7%

Revenue from geophysical (RMB m) 1,877 1,399 1,561 2,427 3,050 2,973 3,569 4,349 5,131

Change (YoY) 30.1% -25.5% 11.6% 55.5% 25.7% -2.5% 20.1% 21.9% 18.0%

Geophysical EBIT 551 323 339 586 795 726 874 1,044 1,231

EBIT margin 29.3% 23.1% 21.7% 24.2% 26.1% 24.4% 24.5% 24.0% 24.0%

No. of seismic vessels owned 8 8 8 8 9 7 8 8 8

No. of integrated marine surveying vessels 4 4 4 5 7 7 7 8 9

No. of undersea cable teams n.a n.a n.a n.a n.a 2 2 2 2

Revenue from surveying (RMB m) 265 302 310 424 607 542 553 569 586

Revenue from seismic (RMB m) 1,611 1,097 1,251 2,004 2,443 2,431 3,016 3,780 4,545

2D Collection (km) 49,448 33,900 24,469 27,808 17,894 25,976 22,080 22,521 22,972

2D Processing (km) 23,402 22,588 14,846 22,132 23,600 23,656 9,462 9,936 10,432

3D Collection (km2) 13,592 10,394 13,008 23,174 29,498 24,675 32,571 40,714 48,857

3D Processing (km2) 8,382 7,951 7,983 9,972 16,000 24,397 32,300 40,375 48,450

18

Figure 17: Earnings projection


(RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E (RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E

Income Statement (Y/E Dec) Cash Flow Statement (Y/E Dec)

Revenue 22,279 27,527 34,365 38,719 42,418 Pretax profit 5,437 7,520 9,941 11,217 12,203

Drilling 11,252 14,665 17,827 19,115 19,873 Depreciation & Amortization 3,173 3,311 3,644 3,908 4,089

Well services 4,858 6,475 9,195 11,033 12,688 Share of profits of jointly-controlled entities (243) (297) (365) (468) (600)

Marine support and transportation 2,945 3,251 3,604 4,029 4,514 Interest expenses 505 630 598 568 523

Geophysical 3,050 2,973 3,569 4,349 5,131 Change in w orking capital 599 (1,187) (164) 58 121

Other revenue 174 163 171 193 211 Interest income (127) (125) (171) (193) (211)

Total operating expense (16,660) (19,879) (24,362) (27,595) (30,503) Income tax paid (791) (1,337) (1,243) (1,739) (2,013)

EBIT 5,619 7,648 10,003 11,124 11,915 Others 174 (52) 0 0 0

Drilling 3,714 5,765 7,131 7,550 7,790 Operating cash flow 8,727 8,463 12,240 13,351 14,111

Well services 562 694 1,655 1,986 2,284

Marine support and transportation 547 464 343 544 609 Purchase/(disposal) of PP&E,net (3,638) (7,646) (8,457) (6,948) (6,442)

Geophysical 795 726 874 1,044 1,231 Acqusition of subsidiaries 0 0 0 0 0

D&A 3,173 3,311 3,597 3,860 4,040 Investment in associates/JCE 0 0 0 0 0

EBITDA 8,792 10,959 13,600 14,984 15,955 Dividend received from associates/JCE 178 137 164 211 270

Exchange loss, net (42) (6) 0 0 0 Interest received 107 142 171 193 211

Finance costs (513) (638) (598) (568) (523) Others (5,050) 2,581 0 0 0

Interest income 127 125 171 193 211 Investing cash flow (8,403) (4,785) (8,122) (6,545) (5,961)

Investment income 2 94 0 0 0

Share of profits of joint ventures, net of tax 243 297 365 468 600 Proceed from /(repayment of) borrow ings 5,299 (1,636) (1,714) (2,000) (4,029)

Pretax Profit 5,437 7,520 9,941 11,217 12,203 Proceed from equity 0 0 4,631 0 0

Income tax expenses (867) (793) (1,243) (1,739) (2,013) Dividend paid (811) (1,394) (2,052) (2,484) (2,838)

After tax profit 4,570 6,726 8,698 9,478 10,189 Others (555) (663) (598) (568) (523)

Minority interests 10 10 17 19 21 Financing cash flow 3,933 (3,693) 268 (5,052) (7,390)

Net Profit 4,559 6,716 8,681 9,459 10,168

Recurring net profit 4,463 6,716 8,281 9,459 10,168 Net change in cash 4,256 (16) 4,386 1,754 761

EPS (RMB) FY2012 FY2013 FY2014E FY2015E FY2016E

Reported 1.014 1.494 1.824 1.982 2.131 Valuation

Recurring 0.993 1.494 1.740 1.982 2.131 PER (recurring earnings) (x) 16.7 10.9 9.4 8.2 7.6

DPS (RMB) 0.310 0.456 0.522 0.595 0.639 Dividend yield 1.9% 2.8% 3.2% 3.7% 3.9%

PBR (x) 2.3 2.0 1.6 1.4 1.2

(RMB m) FY2012 FY2013 FY2014E FY2015E FY2016E EV/EBITDA (x) 10.7 8.5 6.8 5.9 5.2

Balance Sheet (RMB m) Growth rate

NON-CURRENT ASSETS Revenue 20.2% 23.6% 24.8% 12.7% 9.6%

Property, plant and equipment 47,076 51,292 56,092 59,121 61,463 EBIT 12.8% 36.1% 30.8% 11.2% 7.1%

Goodw ill 4,235 4,108 4,108 4,108 4,108 EBITDA 9.2% 24.6% 24.1% 10.2% 6.5%

Other intangible assets 371 393 407 419 429 Recurring net profit 12.6% 50.5% 23.3% 14.2% 7.5%

Investments in joint ventures 509 710 911 1,168 1,499

Deferred Tax Assets, LT 0 7 7 7 7 Operating ratios

Other non-current assets 235 1,160 1,160 1,160 1,160 EBIT margin 25.4% 28.0% 29.3% 28.9% 28.2%

Total non-current assets 52,425 57,672 62,686 65,983 68,666 EBITDA margin 39.8% 40.0% 39.8% 38.9% 37.8%

Recurring net margin 20.2% 24.5% 24.2% 24.6% 24.1%

CURRENT ASSETS Asset Turnover 0.32 0.36 0.40 0.41 0.42

Inventory 949 1,052 1,350 1,543 1,720 Adjusted ROE 14.7% 19.3% 19.3% 18.2% 17.2%

Notes Receivable 620 1,513 1,949 2,273 2,575 Adjusted ROA 6.4% 8.7% 9.7% 10.0% 10.1%

Accounts Receivable 4,145 5,873 7,352 8,283 9,074 Interest coverage 11.0 12.0 16.7 19.6 22.8

Prepayments, deposits and other receivables 651 427 786 886 971 Net debt / equity 60.9% 55.4% 30.0% 19.4% 9.5%

Cash and equivalents 9,815 9,601 13,986 15,741 16,502 Current Ratio 2.8 1.7 1.9 1.9 2.1

Other Current Assets 6,044 3,125 3,125 3,125 3,125 Quick Ratio 2.7 1.6 1.8 1.8 2.0

Total Current Assets 22,223 21,591 28,548 31,851 33,967 Days inventories 25 22 21 22 23

Days receivables 67 67 71 74 75

Total assets 74,649 79,262 91,234 97,835 102,633 Days payables 131 134 142 149 151

NON-CURRENT LIABILITIES

Long term borrow ings 31,710 27,027 24,537 22,537 20,537

Deferred tax liabilities 1,688 1,129 1,129 1,129 1,129

Deferred revenue 1,122 1,266 1,710 1,926 2,110

Other non-current liabilities 0 37 37 37 37

Total Non-Current Liabilities 34,521 29,458 27,413 25,629 23,813

CURRENT LIABILITIES

Short term borrow ings 1,660 3,804 4,580 4,580 2,551

Trade payables 5,022 7,159 9,033 10,325 11,511

Other payables 914 1,210 1,301 1,398 1,503

Current income tax liabilities 267 258 258 258 258

Other Current Liabilities 60 113 113 113 113

Total current liabilities 7,923 12,544 15,284 16,674 15,937

EQUITY

Share capital 4,495 4,495 4,772 4,772 4,772

Reserves 27,699 32,743 43,728 50,702 58,033

MI 11 21 38 58 79

Total equity 32,205 37,260 48,538 55,531 62,883

Toal equity and liabilities 74,649 79,262 91,234 97,835 102,633

BVPS (RMB) 7.2 8.3 10.2 11.6 13.2

19

Valuation

COSL is trading at 8x 2015E PER, 20% below its five-year average (10x). We think

this is due to the market’s concerns over the weakness of day rates. However, we ex-

pect COSL will still be able to achieve ROA of 10%+ between 2014E and 2016E, up

from single digits over the past few years (we use ROA instead of ROE to exclude the

gearing effect), suggesting improving profitability.

In terms of PER, COSL is trading at a 29% discount to Chinese oilfield services

names. We think this is unjustified given COSL’s high earnings visibility vs. independ-

ent oilfield services players. Compared with international players, COSL is trading at a

~40% discount to the tier-one players and 23% discount to the global drillers.

We are initiating coverage on COSL with a BUY rating and target price of HK$25,

based on 10x 2015E PER (COSL’s average rolling forward PER over the past five

years). We believe our target multiple is not demanding. Share price catalysts come

from more news flow on oil and gas development in the South China Sea, as well as

any new capacity additions by COSL.

Figure 18: COSL PER trend

Sources: Bloomberg, CGIHK Research estimates

0

5

10

15

20

25

30

Oct-09

Feb-10

May-10

Aug-10

Nov-10

Mar-11

Jun-11

Sep-11

Dec-11

Apr-12

Jul-12

Oct-12

Jan-13

May-13

Aug-13

Nov-13

Mar-14

Jun-14

Sep-14

HKD

15x13x

11x

9x

7x

20

Figure 19: Peer comparison

Sources: Bloomberg, Company, CGIHK Research estimates for covered stocks

Figure 20: Correlation between COSL share price and WTI crude price

Sources: Bloomberg

0

20

40

60

80

100

120

140

160

1 88

17

52

62

34

94

36

52

36

10

69

77

84

87

19

58

10

45

11

32

12

19

13

06

13

93

14

80

15

67

16

54

17

41

18

28

19

15

20

02

20

89

21

76

22

63

23

50

24

37

25

24

26

11

26

98

27

85

28

72

0

5

10

15

20

25

30

COSL share price (HK$) (LHS) WTI oil price (US$) (RHS)

Ticker Company Rating Price Market cap PB (x) EV/EBITDA (x)

(local currency) (US$ m) 2013A 2014E 2015E 2013A 2014E 2015E 2013A 2014E 2015E

Chinese (HK listed)

2178 HK Equity Petro-king HOLD 2.46 343 12.2 16.9 14.5 1.2 1.2 1.1 8.0 7.8 6.4

3337 HK Equity Anton Oilfield SELL 2.98 851 13.9 23.0 18.9 2.3 2.2 2.0 10.0 10.8 9.7

1251 HK Equity SPT Energy - 3.44 681 14.6 12.6 9.1 2.4 2.1 1.7 8.2 7.2 5.5

2883 HK Equity China Oilfield Services-H BUY 20.45 13,887 10.9 9.4 8.2 2.0 1.6 1.4 8.5 6.8 5.9

196 HK Equity Honghua Group - 1.88 786 9.5 8.0 6.9 1.0 0.9 0.8 8.1 7.3 6.4

1623 HK Equity Hilong Holding SELL 3.80 832 11.9 13.7 11.8 1.9 1.7 1.6 11.1 8.9 7.9

Average 12.2 13.9 11.6 1.8 1.6 1.4 9.0 8.1 7.0

Chinese (SZ listed)

002353 CH Equity Yantai Jereh 38.46 5,912 29.2 23.2 16.5 5.0 4.5 4.1 23.7 18.1 12.8

002554 CH Equity China Oil HBP Science & Technology 13.15 960 51.8 35.3 25.7 4.5 4.3 3.8 50.5 17.9 13.0

300309 CH Equity Gi Technologies 24.06 837 70.8 52.6 37.4 4.2 4.0 3.6 46.4 30.7 21.4

Average 76.9 40.9 30.0 5.5 4.3 3.8 43.7 22.2 15.8

International

HAL US Equity Halliburton 66.51 56,569 19.5 16.5 12.5 3.9 3.6 3.1 9.7 8.5 6.9

SLB US Equity Schlumberger 103.21 133,805 19.8 18.2 15.1 3.3 3.2 2.9 11.0 10.0 8.8

BHI US Equity Baker Hughes 67.74 29,470 21.3 16.2 12.1 1.6 1.6 1.4 8.2 6.8 5.7

WFT US Equity Weatherford 21.85 16,882 32.9 19.2 12.2 2.1 2.0 1.7 11.9 8.0 6.6

NOV US Equity National Oilwell Varco 80.23 34,518 13.9 13.4 11.9 1.6 1.5 1.4 7.6 7.4 6.7

TS US Equity Tenaris 46.55 27,477 17.8 18.0 15.6 2.1 2.0 1.9 9.4 9.2 8.1

VK FP Equity Vallourec 36.20 6,463 15.1 19.6 15.9 1.0 1.0 0.9 6.6 8.1 7.3

Average 20.0 17.3 13.6 2.2 2.1 1.9 9.2 8.3 7.1

International (Drilling services focus)

NBR US Equity Nabors Industries 23.89 7,161 22.2 19.5 10.9 1.2 1.2 1.0 6.2 5.9 4.9

HP US Equity Helmerich & Payne 101.12 10,944 16.7 16.0 13.5 2.3 2.2 2.0 7.0 6.7 5.7

PDS US Equity Precision Drilling 11.09 3,247 17.0 14.8 9.8 1.4 1.4 1.1 6.7 5.7 4.6

ESI CN Equity Ensign Energy 14.10 1,969 15.8 14.3 11.0 1.1 1.0 1.0 5.6 5.1 4.3

EDCL LI Equity Eurasia Drilling 26.62 3,907 9.4 9.9 9.0 2.0 1.8 1.6 4.9 5.2 4.8

SPM IM Equity Saipem SPA 16.38 10,034 13.0 22.0 11.8 1.5 1.5 1.3 7.6 8.7 6.8

RIG US Equity Transocean 34.08 12,343 6.7 7.5 10.8 0.7 0.7 0.7 5.5 5.8 6.5

SDRL US Equity Seadrill 28.26 13,934 7.2 9.4 8.4 1.7 1.4 1.4 9.5 9.3 8.1

Average 13.5 14.2 10.7 1.5 1.4 1.3 6.6 6.6 5.7

PE (x)

21

Figure 21: Correlation between COSL share price and day rates


0

5

10

15

20

25

30

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

COSL JU Avg. (LHS) COSL Semi-Subs Avg. (LHS) Share price

US$ HK$

Figure 22: H share price discount to A share price


-80.0%

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10/1

/20

07

1/1

/200

8

4/1

/200

8

7/1

/200

8

10/1

/20

08

1/1

/200

9

4/1

/200

9

7/1

/200

9

10/1

/20

09

1/1

/201

0

4/1

/201

0

7/1

/201

0

10/1

/20

10

1/1

/201

1

4/1

/201

1

7/1

/201

1

10/1

/20

11

1/1

/201

2

4/1

/201

2

7/1

/201

2

10/1

/20

12

1/1

/201

3

4/1

/201

3

7/1

/201

3

10/1

/20

13

1/1

/201

4

4/1

/201

4

7/1

/201

4

H share discount to A share

22

Major risk factors

Potential decline in oil and gas price. We believe this is the major risk to COSL. De-

cline in oil and gas prices will affect oil companies’ capex plans and will put pressure

on the drilling day rates and demand for oilfield services.

Operating risk in disputed waters. Recently, CNOOC sent HYSY981 (semi-sub op-

erated and managed by COSL) to carry out activities in the disputed waters located in

the South China Sea, which resulted in tension between China and Vietnam. We ex-

pect this will potentially affect some upcoming exploration activities in certain areas in

the future, though we believe the overall impact to COSL is under control.

Customer concentration. CNOOC is COSL’s largest customer. In 2013, 65% of

COSL revenue was generated from CNOOC. While we believe it is good for COSL to

leverage on CNOOC’s offshore growth potential, the high reliance hand increases

COSL’s business risk. We understand that some of COSL’s drilling contracts signed

with CNOOC in the past carried lower day rates compared with the market rates. This

reduces the transparency of the revenue outlook and could result in valuation discount.

23

Company background

Figure 23: Shareholding structure of COSL as of Sep 22,2014

Sources: HKEx, SHEx, CGIHK Research

China Oilfield Services Limited (COSL) is an integrated oilfield services provider with

nearly 50 years of experience in offshore operation. Its services cover each phase of

offshore oil and gas exploration. COSL provides services for single operations for cus-

tomers, and also offers integrated package and turnkey services. Its operations are

divided into four segments - drilling services; well services; marine support & transpor-

tation services; and geophysical and surveying services. COSL's services cover off-

shore China, mainly Bohai, East China Sea and South China Sea, and also extend to

Southeast Asia, Australia, Middle East, America, North Africa and northern Europe.

COSL has the largest fleet of offshore oilfield services facilities in China. As of end

June 2014, COSL operated 43 drilling rigs of which 33 are jack-up drilling rigs and 10

semi-submersible drilling rigs, two accommodation rigs and four module rigs. In addi-

tion, as of end- 2013, COSL owns and operates the largest and most diverse fleet in

offshore China, including 69 working vessels and three oil tankers, four chemical carri-

ers, seven seismic vessels, two OBC teams, seven surveying vessels and a vast array

of modern facilities and equipment for logging, drilling fluids, directional drilling, ce-

menting and well work-over services, including FCT (Formation Characteristic Tool),

FET (Formation Evaluation Tool), LWD (Logging-While-Drilling) and ERSC (ELIS Ro-

tary Sidewall Coring Tool).

COSL has been listed on the Main Board of the HKEx since November 20, 2002

[2883.HK] and been listed on Shanghai Stock Exchange since Sep 2008 [601808.SH].

CNOOC is its largest shareholder with a stake of 50.52%.

Shareholder m shares % of total

CNOOC Group (A) 2,410 50.5%

Common Wealth Bank of Australia (H) 218 4.6%

JP Morgan (H) 183 3.8%

BlackRock (H) 180 3.8%

Morgan Stanley (H) 136 2.8%

OppenheimerFunds (H) 91 1.9%

Others 1,554 32.6%

Total 4,772 100.0%

H share 1,811 38.0%

A share 2,960 62.0%

24

Business model

Figure 24 shows services and products at each phase of the exploration, development and

production of offshore oil and natural gas. The production platforms and platform installation

services marked by dotted squares are owned and/or provided by third parties.

Figure 24: COSL business model


Seismic

Survey Wildcat w ell drilling

• Drilling f luids • Tow ing & anchoring

• Directional drilling • Supply

• Cementing • Support team

• Logging

Appraisal w ell drilling

• Drilling f luids Development w ell drilling

• Directional drilling • Tow ing & anchoring

• Cementing • Supply

• Logging • Support team

• Well completion Platform installation

(3rd Party)

• Shuttle tankers

• Well w orkovers Producing platforms • Standby

• Production logging (3rd Party) • Supply

• Crew boats

• FPSO management

• Platform drilling teams • Terminal management

• Support team

Exploration

Development

Production

Drilling MS&TWell Services &

Geophysical

25

COSL has a relatively concentrated customer base with CNOOC the largest custom-

er, accounting for about 60% of total revenue in 2013. Statoil is the second largest

customer, contributing 9% of COSL’s revenue in 2013.

Figure 25: Breakdown of sales to five largest customers of 2013 Sources: Company, CGIHK Research

Figure 26: Breakdown of five largest suppliers of 2013


Major customers and suppliers

CNOOC, 60.7%

Statoil, 8.9%

ConocoPhillips, 6.8%

Global Petro Tech FZCO, 4.4%

Petróleos Mexicanos, 3.4%

Others, 15.8%

China Merchants Group, 9.20%

Schlumberger (China), 3.70%

Bohai Petroleum Supply Co., Ltd

(Related Party of CNOOC), 2.60%

Shanghai Shipyard Co., Ltd, 2.50%

Yantai CIMC Raffles Offshore Limited, 2.00%

Others, 80.00%

26

Figure 27: COSL revenue breakdown (RMB m)


550 869

1,442

1,877

1,399 1,561 2,427

3,050 2,973

868 1,043 1,374

1,614 2,171 2,346

2,534 2,945

3,251

1,165 1,808

2,270 2,733

4,417 4,327 3,950

4,858

6,475

2,206 2,645

3,922

5,920

9,892 9,327 9,515

11,252

14,665

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Geophysical (RMBm) Marine support and transportation (RMBm) Well services (RMBm) Drilling (RMBm)

Figure 28: COSL revenue breakdown (%)


11.5%

13.7%

16.0%15.5%

7.8%8.9%

13.2%13.8%

10.9%

18.1%16.4%

15.3%13.3%

12.1%13.4%

13.8%

13.3%11.9%

24.3%

28.4%

25.2%

22.5%

24.7% 24.6%

21.4% 22.0%23.7%

46.1%

41.6%43.5%

48.8%

55.3%

53.1%51.6% 50.9%

53.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Geophysical Marine support and transportation Well services Drilling

27

Figure 29: Cost breakdown of past five years of COSL


Figure 30: Breakdown of segment operating profits (% of total operating profit each year)


13%15%

12%10% 11%

19%

13%11%

7%

12%14%

10%

16%

14%

15%13%

15% 14%17%

5%

10% 10% 9%

6%

11%

20%18% 18%

26%

14%12% 13%

16%

11% 13% 12%

60%

51%

54%

59%

48%

53%

58%

70%67% 67%

63%

73%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Geophysical Marine support and transportation Well services Drilling

4%3% 3%

4%6%

5%4% 4% 5% 5%

8% 8% 7% 8% 8%7%

9%11%

17%

20%21%

25%

23%

19%

17%

20%

24%24%

22%21%

27% 26%25%

24% 25%

0%

5%

10%

15%

20%

25%

30%

2009 2010 2011 2012 2013

Operating lease expense Repair and maintenance

Other operating expense Sub-contracting expense

Depreciation and amortisation Employee compensation costs

Consumption of Supplies, Materials, Fuel etc.

28

Drilling segment

Figure 31: Revenue from drilling segment


COSL is the major supplier to China’s offshore drilling services sector and an important

participant in international drilling services. The company provides services such as

drilling, module rigs, land drilling rigs and drilling-rig management to upstream oil com-

panies, as well drilling is needed in the oil exploration and development stages. In the

China seas, COSL’s major customer is CNOOC and it operates mainly in Bohai where

waters are relatively shallow; East China Sea and South China Sea where waters are

mainly deep water (>300m) and sea conditions are relatively more complicated. COSL

leases its rigs to oil companies and charges a fixed day rate or rates related to market

conditions. Contracts are either on a well-by-well basis or on a term basis where the rig

is rented for a predetermined period regardless of whether the equipment is put to

work during the period.

COSL has upgraded its fleet capacity over the years by adding new high-end jackups

with working water depths over 300ft. The fleet has been expanded via construction,

operating and buying rigs. As at the end of 2013, 11 drilling rigs were operating in Bo-

hai, China; 10 in the South China Sea; two in the East China Sea and 15 in interna-

tional markets such as the North Sea off Norway; Mexico, Indonesia and the Middle

East. The drilling segment generates more than 50% of COSL’s total revenue.

906 986 1,064 1,282 1,716

2,206 2,645

3,922

5,920

9,892 9,327 9,515

11,252

14,665

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Rev. of drilling (RMB m) (LHS) YoY

29

Figure 32: Cost structure of drilling segment (% of total segment operating expenses) – based

on PRC GAAP


Figure 33: COSL Semi-sub details


10%8% 9%

5%

15%

20%

27%25%

23%25% 25%

24%

34%

27%25%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013

Other operating expense Sub-contracting & Operating Lease

Employee compensation costs Consumption of Supplies & Repair

Depreciation and amortisation

Jack-up Time delivered to COSL Construction/Lease/Buy Working water Depth (ft)

Nanhai II 2002 C 1000

Nanhai V 2002 C 1500

Nanhai VI 2002 C 1500

COSLPIONEER 10/26/2010 C 2500

COSLINNOVATOR October 2011 C 2500

COSLPROMOTER 4/25/2012 C 2500

Haiyangshiyou 981 5/9/2012 L 10000

Nanhai VIII October 2012 B 4600

Nanhai VII March 2013 Dry Lease 5yrs 1000

Nanhai IX July 2013 B 5000

COSL Prospector (New) 2H2014 C 5000

Haiyangshiyou 982 (New) August 2016 C 5000

30

Figure 34: COSL Jack-up rig details


Jack-up Time delivered to COSL Construction/Lease/Buy Working water Depth (ft)

Bohai IV 2002 C 300

Bohai V 2002 C 130

Bohai VII 2002 C 130

Bohai VII 2002 C 250

Bohai IX 2002 C 131.2

Bohai X 2002 C 250

Bohai XII 2002 C 180

Nanhai I 2002 C 165

Nanhai IV 2002 C 315

HYSY 935 November 2003 Dry Lease 300

HYSY 931 July 2004 B 300

HYSY 941 5/31/2006 C 400

HYSY 942 8/18/2008 C 400

COSLBOSS 9/2008 by acquisition B 400

COSLCRAFT 9/2008 by acquisition B 400

COSLSEEKER 9/2008 by acquisition B 375

COSLFORCE 9/2008 by acquisition B 375

COSLSUPERIOR 9/2008 by acquisition B 375

COSLPOWER 9/2008 by acquisition B 375

COSLConfidence February 2009 C 375

COSLSTRIKE May 2009 C 400

HYSY 937 12/20/2009 C 300

HYSY 936 12/30/2009 C 300

HYSY 921 10/30/2010 C 200

HYSY 922 10/30/2010 C 200

HYSY 923 May 2011 C 200

HYSY 924 May 2011 C 200

Kantan II 1H2013 Wet Lease 300

COSLGIFT August 2013 B 375

COSLHUNTER December 2013 B 375

Gulf Driller I 5/1//2014 Lease 6yrs 300

HYSY 932 4/18/2014 Dry Lease 5yrs 300

Kaixuan I 7/17/2014 L 400

HYSY 943 (New) September 2015 C 400

HYSY 944 (New) October 2015 C 400

31

Figure 35: COSL rigs average day rate


Figure 36-1: Drill rigs delivery schedule (2003-2007)


20 27 29 32 33 4056

78

116 120 113 107 108117

49 50 45 50 4957

118

142

179188 194

261

298

323

-20%

0%

20%

40%

60%

80%

100%

120%

0

50

100

150

200

250

300

350

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Jackup Average Day Rate (000' USD) Semi-sub Average Day Rate (000' USD)

YoY of Jack up average day rate YoY of Semi-sub average day rate

Rig Name 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Jack ups

COSLSTRIKE

COSLGIFT

COSLHUNTER

COSLConfidence

HYSY936

COSLBOSS

COSLSEEKER

COSLFORCE

COSLSUPERIOR

COSLCRAFT

COSLPOWER

HYSY921

HYSY922

HYSY923

HYSY924

HYSY931

HYSY935

HYSY937

HYSY941

HYSY942

Kantan II

Gulf Driller I

HYSY932

Kaixuan I

HYSY943

HYSY944

Semi-subs

HYSY981

COSLPROMOTER

COSLINNOVATOR

COSLPIONEER

Nanhai VII

Nanhai VIII

Nanhai IX

COSL Prospector

HYSY982

2003 2004 2005 2006 2007

32

Figure 36-2: Drill rigs delivery schedule (2008-2012)


Rig Name 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Jack ups

COSLSTRIKE

COSLGIFT

COSLHUNTER

COSLConfidence

HYSY936

COSLBOSS

COSLSEEKER

COSLFORCE

COSLSUPERIOR

COSLCRAFT

COSLPOWER

HYSY921

HYSY922

HYSY923

HYSY924

HYSY931

HYSY935

HYSY937

HYSY941

HYSY942

Kantan II

Gulf Driller I

HYSY932

Kaixuan I

HYSY943

HYSY944

Semi-subs

HYSY981

COSLPROMOTER

COSLINNOVATOR

COSLPIONEER

Nanhai VII

Nanhai VIII

Nanhai IX

COSL Prospector

HYSY982

2008 2009 2010 2011 2012

Figure 36-3: Drill rigs delivery schedule (2013-2016E)


Rig Name 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Jack ups

COSLSTRIKE

COSLGIFT

COSLHUNTER

COSLConfidence

HYSY936

COSLBOSS

COSLSEEKER

COSLFORCE

COSLSUPERIOR

COSLCRAFT

COSLPOWER

HYSY921

HYSY922

HYSY923

HYSY924

HYSY931

HYSY935

HYSY937

HYSY941

HYSY942

Kantan II

Gulf Driller I

HYSY932

Kaixuan I

HYSY943

HYSY944

Semi-subs

HYSY981

COSLPROMOTER

COSLINNOVATOR

COSLPIONEER

Nanhai VII

Nanhai VIII

Nanhai IX

COSL Prospector

HYSY982

2015E 2016E2013 2014E

33

Well services segment

Figure 37: Revenue from well services segment Sources: Company, CGIHK Research

COSL has over 30 years’ experience in offshore well service operations and over 20

years’ experience in onshore well service operations. COSL’s major clients for well ser-

vices include oil and gas companies in China (mainly CNOOC and PetroChina) and inter-

national oil and gas companies (BP, Shell, ConocoPhillips and Chevron etc.). COSL’s well

services segment provides onshore and offshore well services, such as logging, drilling

and completion fluids, directional drilling, cementing, well completion and work-over, oil-

field production optimization, etc. for oil and gas companies. COSL continues to enhance

the efficiency of this segment by research and development to introduce new technolo-

gies, patents and production.

607 595 672 673 854

1,165

1,808

2,270

2,733

4,417 4,327 3,950

4,858

6,475

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Rev. of well services (RMB m) (LHS) YoY

Figure 38: Cost structure of well services segment (% of total segment operating expenses) –

PRC GAAP


6%9% 7%

16%13%

10%

22%21%

18%

22%

25%

31%

34%33%

34%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013

Other operating expense Depreciation and amortisation

Employee compensation costs Sub-contracting & Operating Lease

Consumption of Supplies & Repair

34

MS&T segment

Figure 39: Rev. of Marine support and transportation services segment Sources: Company, CGIHK Research

The Marine Support and Transportation Services segment offers offshore utility trans-

portation services for supplies, cargoes, and crew transportation; standby services at

sea; moving and positioning services for drilling rigs; and towing and anchoring services

for offshore vessels. This segment also provides services for offshore oil and natural

gas fields exploration, development, and production; oil tankers for transporting crude

oil, refined oil, and gas products; and chemical carriers for carrying chemical products,

such as methanol.

Figure 40: Cost structure of well services segment (% of total segment operating expenses) –


632 773

868 1,043

1,374

1,614

2,171 2,346

2,534

2,945

3,251

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

500

1,000

1,500

2,000

2,500

3,000

3,5002003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Tol. Rev. of marine segment (mRMB) YoY

5% 4% 4%

16%14%

13%

23%

19% 18%21%

28%

35%34% 34%

30%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013




35

Figure 41: Total No. of vessels of Marine support and transportation services segment


As of 31 December 2013, COSL owned 69 utility vessels of various types, three oil tank-

ers and four chemical carriers, operating mainly in offshore China. Main duties of the

utility vessels are to provide services to offshore production facilities and also to support

offshore maintenance and construction work. They typically range from 96 feet to 135

feet and may, depending on the vessel design, have enhanced features such as fire-

fighting and pollution response capabilities. Except for self-owned vessels, COSL also

charters vessels to expand its shipping capacity.

5458

68 68 69 7075

8075 75

7269

88%

90%

92%

94%

96%

98%

100%

0

10

20

30

40

50

60

70

80

90

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

No. of total self-owned utility vessels (LHS)

Calendar day utilization rate of self-owned vessels

36

Geophysical and Surveying segment

Figure 42: Revenue breakdown of geophysical and surveying segment Sources: Company, CGIHK Research

The Geophysical and Surveying segment provides offshore geophysical and surveying

services, including marine seismic data collection, marine surveying, seismic data pro-

cessing and interpretation, land-based engineering, underwater engineering, etc.

Figure 43: Cost structure of geophysical and surveying segment (% of total segment operating

expenses) – PRC GAAP


232 296 265 302 310 424

607 542 637

1,147

1,611

1,097 1,251

2,004

2,443 2,431

-40%

-20%

0%

20%

40%

60%

80%

100%

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013

Rev. of surveying (RMBm) Rev. of geophsical (RMBm)

YoY of surveying YoY of geophsical

6%4% 5%

16% 15%17%18%

15% 15%

25%

33%

26%

35%33%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013




37

Figure 44: 2D business details of geophysical and surveying segment


The seismic data are recorded in either two-directional (2D) or three-directional (3D)

form from sound wave reflections off sub-surface geology. This is used to understand

and map geological structures for exploratory purposes to predict the location of undis-

covered reserves. The following two figures show the details working volume of the 2D

and 3D business.

Figure 45: 3D business details of geophysical and surveying segment


14,512 14,137

23,402 22,588

14,846

22,132 23,600 23,656

45,682

37,810

49,448

33,900

24,46927,808

17,894

25,976

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

10,000

20,000

30,000

40,000

50,000

60,000

2006 2007 2008 2009 2010 2011 2012 2013

2D Processing (km) 2D Collection (km)

YoY of 2D collection YoY of 2D processing

4,1875,686

8,382 7,951 7,9839,972

16,000

24,397

7,337 9,694

13,592

10,394

13,008

23,174

29,498

24,675

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2006 2007 2008 2009 2010 2011 2012 2013

3D Processing (km2) 3D Collection (km2)

YoY of 3D collection YoY of 3D processing

38

Figure 46: Total No. of vessels of geophysical and surveying segment


COSL is a major supplier for China’s offshore geophysical and surveying services. It

also provides services in other offshore regions, including Asia-Pacific, the Americas,

Middle East, Africa and Europe. The geophysical and surveying services are divided

into two main categories: geophysical services and surveying services. COSL owns

seven seismic vessels, two undersea cable teams and seven integrated marine survey-

ing vessels.

4 4 4 4 4 4

5

7 77 7 7

8 8 8 8

9

7

0

1

2

3

4

5

6

7

8

9

10

2005 2006 2007 2008 2009 2010 2011 2012 2013

No. of integrated marine surveying vessels

No. of seismic vessels owned

39

Appendix: Selected Management Profile

LIU Jian (刘健), 56, Chairman and a Non-Executive Director. LIU is a senior engineer and joined

CNOOC in 1982. He served as manager of CNOOC Bohai Corporation Oil Production Company, a sub-sidiary of CNOOC; Deputy General Manager of the Tianjin Branch of CNOOC China Limited; General Manager of the Zhanjiang Branch of CNOOC China Limited; Senior Vice President and General Manager of the Development and Production Department of CNOOC Limited; director of CNOOC China Limited, CNOOC International Limited and CNOOC Southeast Asia Limited. In October 2005 he was appointed executive vice president of CNOOC Ltd and was primarily responsible for offshore oilfield development and production of CNOOC Ltd. Liu was appointed Chief Executive Officer of COSL with effect from March 2009. In June 2009, Liu was appointed Vice-Chairman of COSL. In May 2010, he was appointed Deputy General Manager of CNOOC. He was also appointed Chairman of COSL and Offshore Oil Engi-neering Co., Ltd in August and December 2010 respectively. Liu graduated from Huazhong University of Science and Technology with a Bachelor of Science degree and received his MBA degree from Tianjin University in 2000. He has over 32 years of experience in the oil and gas industry.

LI Yong (李勇), 51, Executive Director, Chief Executive Officer and President of COSL. Since August

2010, LI has been Executive Director, Chief Executive Officer and President of COSL. From April 2009 to

August 2010, he served as Executive Director and President of COSL. From May 2006 to April 2009, he

served as Executive Director, Executive Vice President and Chief Operating Officer of COSL. From Octo-

ber 2005 to May 2006, Li was Executive Vice President and Chief Operating Officer of COSL. From 2003

to 2005, he served as Deputy General Manager of CNOOC (China) Ltd. – Tianjin Branch. He was Direc-

tor of Drilling and Completion Well of CNOOC Ltd from 1999 to 2003. Between 1993 and 1999, Li was

Head of the Comprehensive Technology Division and Head of Well Testing Division of Exploration De-

partment of CNOOC. Li joined CNOOC in 1984 and served in various positions, including Assistant Engi-

neer and Engineer at China Offshore Oil Exploration Project Planning Company, CNOOC Operational

Department. He graduated from Southwest Petroleum Institute with a Bachelor in Petroleum Engineering

in 1984. Li obtained a Master’s degree in Oil Economics from the Scuola E Mattei of Italy in 1989 and an

MBA from Peking University in 2001. He has worked in the oil and natural gas industry for over 30 years.

LI Feilong (李飞龙), 50, Executive Director, Executive Vice President and CFO of COSL. LI joined

CNOOC in 1986. From 1986 to 1992, he served as an economist and senior analyst in the Planning De-

partment of CNOOC. From 1993 to 1997, he served as senior auditor and audit manager in the Audit

Department. From February to September 1998, he received staff training from a US petroleum compa-

ny. From 1999 to 2001, Li served as head of the Finance Team of IPO Office and the Finance Manager

of Hong Kong Office of CNOOC Ltd. From 2001 to 2003, he served as Assistant Controller of CNOOC

Ltd and has been Controller since 2004. He has also been a director of CNOOC Southeast Asia Ltd, a

subsidiary of CNOOC Ltd. and a director of CNOOC Insurance Company, a subsidiary of CNOOC. From

2007 to November 2011, Li was a member of the Financial Accounting Standards Advisory Council by

the Trustees of the Financial Accounting Foundation. In 2010 he was appointed as a member of the In-

ternational Financial Reporting Standards Interpretations Committee by the Trustees of International Fi-

nancial Reporting Standards Foundation. Li was appointed Executive Vice President and CFO of the

Company in September 2010 and Executive Director of the Company in December 2010. He graduated

from China University of Petroleum in 1986 with a Bachelor Degree in Management Engineering.

40

Appendix: Key terms explanation

Figure 47: Key terms explanation

Sources: CGIHK Research

"Jackup rig"

A type of mobile platform that consists of a buoyant hull f itted w ith a number of movable legs, capable of

raising its hull over the surface of the sea. It is the most popular type of mobile offshore drilling unit (MODU)

for offshore exploration and development purposes. The premise of a jackup rig is that it is self-elevating.

The legs are stationed on the ocean floor and the drilling equipment is jacked up above the w ater's

surface. When their legs are not deployed, jackups float, w hich facilitates transport of these MODUs from

one drilling location to another. While some are capable of self-propulsion and do not need an outside

source for movement, most jackups are transported via tug boats or submersible barges.

It provides a very stable drilling environment, compared w ith other types of offshore drilling rigs; jackups

can drill in w aters up to 350 feet deep. Once drilling is required in w aters that are deeper than the

capabilities of a jackup, semisubmersibles and drillships become a more logical choice for exploration and

development operations.

"Semi-sub rig"

A mobile offshore drilling unit (MODU) designed w ith a platform-type deck that contains drilling equipment

and other machinery supported by pontoon-type columns submerged into the w ater. As a semi-

submersible, the rig offers exceptional stability for drilling operations, and rolling and pitching from w aves

and w ind is diminished. In addition to occasional w eather threats, such as storms, cyclones or hurricanes,

some drilling locations are harsh w ith constantly rough w aters. Being able to drill in deeper and rougher

w aters, semi-subs opened up a new avenue for exploration and development operations.

“Utilization rate” Calendar day utilization rate is “total w orking days/total calendar days".

"Day rate" Fixed daily fee charged w ith respect to the services provided by a drilling rig or offshore support vessel.

"Drilling f luids"

Fluids, or drilling mud, circulated dow n the w ell during drilling to cool and lubricate the drill bit; remove w ell

cuttings; maintain dow n w ell pressures and preserve the integrity of the w ellbore; drilling f luids can be

w ater, oil, or gas-based, w ith various additives.

"Directional drilling"

Intentional drilling of a w ell at a non-vertical or deviated angle, to improve reach or exposure to petroleum

reservoirs; such drilling is especially common for offshore w ells, given the multiple number of w ells w hich

may be drilled for a single production platform.

"Well completion" Services and installation of equipment that are necessary to prepare a w ell for production , including

casing and w ell treatment, such as acidizing and fracking.

"FPSO"Floating production, storage and off loading vessels w hich are ships f itted w ith crude oil and natural gas

production and processing systems.

"Cementing"

The process of introducing cement to the annular space betw een the w ell-bore and casing. The cement

provides a hydraulic seal preventing f luid communication betw een producing zones in the borehole and

blocking the escape of f luids to the surface. The cement also anchors and supports the casing string and

protects the steel casing against corrosion by formation f luids. Failure to achieve these objectives may

severely limit the w ell’s ability to reach its full producing potential.

41

Disclaimer

This research report is not directed at, or intended for distribution to or used by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject China Galaxy International Securities (Hong Kong) Co., Limited (“Galaxy International Securities”) and/or its group companies to any registration or licensing requirement within such jurisdiction.

This report (including any information attached) is issued by Galaxy International Securities, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to the institutional clients from the information sources believed to be reliable, but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness.

This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company(ies) referred to herein. Past perfor-mance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regard-ing future performance. The recipient of this report should understand and comprehend the investment objectives and its related risks, and where necessary consult their own independent financial advisers prior to any investment decision.

Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published views or investment decisions of China Galaxy International Financial Holdings Limited and any of its subsidiaries (“China Galaxy International”), directors, officers, agents and employees (“the Relevant Parties”).

All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. China Galaxy Interna-tional and/or the Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer.

Disclosure of Interests

China Galaxy International may have financial interests in relation to the subjected company(ies) the securities in respect of which are reviewed in this report, and such interests aggregate to an amount may equal to or more than 1 % of the subjected company(ies)’ market capitalization.

One or more directors, officers and/or employees of China Galaxy International may be a director or officer of the securities of the company(ies) men-tioned in this report.

China Galaxy International and the Relevant Parties may, to the extent permitted by law, from time to time participate or invest in financing transac-tions with the securities of the company(ies) mentioned in this report, perform services for or solicit business from such company(ies), and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto.

China Galaxy International may have served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the last 12 months, significant advice or invest-ment services in relation to the investment concerned or a related investment or investment banking services to the company(ies) mentioned in this report.

Furthermore, China Galaxy International may have received compensation for investment banking services from the company(ies) mentioned in this report within the preceding 12 months and may currently seeking investment banking mandate from the subject company(ies).

Analyst Certification

The analyst who is primarily responsible for the content of this report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report.

Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the securities covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong-listed companies covered in this report; and (4) have any financial interests in the Hong Kong-listed companies cov-ered in this report.

Explanation on Equity Ratings

Copyright Reserved

No part of this material may be reproduced or redistributed without the prior written consent of China Galaxy International Securities (Hong Kong) Co., Limited.

China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

Room 3501-3507, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

China Oilfield Services Limited H [2883.HK] · China Oilfield Services Limited -H ... Any rig...

Documents

Transcript of China Oilfield Services Limited H [2883.HK] · China Oilfield Services Limited -H ... Any rig...