China Oilfield Services Ltd. (COSL) is one of three publicly traded companies comprising China’s third largest oil company, CNOOC, and the only publicly traded Chinese oilfield services company, trading on the Hong Kong Stock Exchange since late 2002. Energy Tribune’s China correspondent, Lisa Zeng Sommer, talked to COSL’s executive vice president, Chen Weidong, during a recent trip to Beijing.

ET: Could you describe both the advantages and disadvantages of COSL being part of CNOOC?

CWD: COSL consists of four major business units: geophysical, drilling, well services, and offshore services. COSL is 62 percent owned by our parent company CNOOC. The first and most obvious advantage is that it is very easy for us to get work from them. About 60 percent of our revenue comes from CNOOC. Second, we have seen very fast investment growth, along with CNOOC, which is the fastest growing major company in China. When COSL first listed on the Hong Kong stock exchange in 2002, we were only a 2 billion yuan (about $250 million) company. By the end of 2005, we were a 5 billion yuan (over $600 million) company. On the other hand, we also face some obvious disadvantages: first, most of our business deals are with CNOOC and are not on par with market prices. Since we are treated as part of CNOOC, we are supposed to give them services at below market price. Otherwise, in their eyes, there is no necessity for our existence. For example, the international drilling rate increased between 50 and 80 percent last year, [yet] COSL only saw a 20 percent increase. Second, COSL, being the product of China’s planning economy system, [has] everything but we are not especially very strong in any area, so it’s hard for us to compete with the multi-national service companies, both in China and in overseas markets.

CWD: COSL’s long-term plan is to become an integrated international service company within the next 10 years. As I mentioned, the majority of our revenue currently comes from CNOOC, the next big chunk is from western oil companies who operate in offshore China. Overseas operation revenues accounted for 10 percent last year, and we expect this to reach 20 percent this year. Our mid-term plan is to have about 50 percent of our revenues from overseas operations by 2010. COSL has operations in Europe, Africa, the Middle East, Southeast Asia, and the Americas.

CWD: We are fully aware of the advanced technology and management skills of the multinational service companies. We have set up joint ventures with Schlumberger, Halliburton, Baker Hughes, and other service companies, by using their strong expertise in certain areas. We have also made acquisitions of high-tech companies to improve our abilities to best serve our clients.

Compared to foreign service companies, we have some advantages. One, we have highly educated manpower, because every year China produces more than twice the entire number of petroleum engineers as America and Europe combined. Two, China is one of three countries – including the U.S and Russia – that have the complete production and consumption scope. Three, we are fairly technologically advanced and we have made [a] huge investment in technology and up-to-date equipment. Four, we have a capital-rich environment. The rest of the world is looking to China as the next superpower and capital is flowing into China freely. COSL will use all these favorable conditions, combined with our own advantages, in getting into the international market, [and we’ll do it] on our own, not tagging along with CNOOC. Recent contracts we secured, such as the drilling and well service contract we secured in Myanmar, and a rig management service contract in Iran, are all through open bidding. These are strong indications that COSL is breaking into the international oilfield service market. We believe places like Russia will be our next best bid to grow internationally. We can learn from majors such as Schlumberger and Halliburton, buying into local service companies, and getting a fairly good market share there.