CHOLF (CHOLF) Q3 2026 Earnings Report, Transcript and Summary

[Interpreted] Corporate representatives, investors and analysts, good afternoon. Thank you for joining China Oilfield Services Limited Conference Call for the third quarter of 2026. Guided by our vision of becoming a world-class energy resources and service company with Chinese characteristics, COSL continues to foster an enabling environment for scientific research and innovation, delivering targeted breakthroughs and environment for scientific research and innovation. We, therefore, have -- our technological innovation is accelerating our transformation, continuously enhancing operational effectiveness and technological value across our core business applications. We continue to coordinate our product and operations with our reform and development initiatives. Our overall workload and utilization rates for major equipment remain high. Equipment resources are being supplied steadily and operational efficiency continues to improve. Overall, the company maintains strong momentum towards high-quality and sustainable development. Please allow me to introduce today's management representative, Mr. Qie Ji, Chief Financial Officer of the company. Today's conference call will be divided into 2 parts. Firstly, Mr. Qie Ji will walk you through the company's financial and operating results for the third quarter of 2026. We will then open the floor for questions. Now I will hand over to Mr. Qie Ji.

[Foreign Language].

[Interpreted] Thank you to the management for the presentation. We'll now move on to the Q&A session [Operator Instructions]. Naidi Zhao from Everbright Securities.

[Interpreted] I have 2 questions. And firstly, I want to start with congratulations on the good operational results of the company. And then I would like to ask the questions. The first question is we've seen that the China's 15th Five-Year Plan already gave some clear instructions on oilfield services businesses. So this has attracted our attention. We would like to know what is the impact of this or such instructions on the oilfield service company as a whole? And also, how do you compare it -- with the Seven-Year Action Plan, do you see things will go faster or will become more steady? That's the first question. And the second question, we pay very much attention to your internationalization, including the specific strategies, plans of your international endeavor as well as the status quo of your key overseas projects and the outlook down the road.

[Interpreted] Thank you for asking the question. So I will try to answer these questions because these questions are very much related to our judgment of the industry as a whole. So regarding your first question, to my knowledge, COSL as one of the core service provider to CNOOC, of course, we will deliver on our dual responsibilities and play our due part when it comes to fulfilling the requirements of China's 15th Five-Year Plan regarding the oil and gas industry, in particular, offshore oil and gas industry, we will definitely have more in-depth cooperation with CNOOC. Currently, we are still talking about how to better align the 2 sides to fulfill such requirements. In terms of specific arrangements, of course, we're still discussing the specific arrangements. Two things I want to highlight here. Firstly, in terms of the workload plan for this year, we believe that it's actually better than the expectation we set at the beginning of the year. And secondly, in terms of the overall idea because only 4 years left for us to complete the 15th Five-Year Plan and oil and gas industry, given its characteristics of being -- having a slow start and accelerating in the process, which means that probably we need to do faster and even things will be more challenging for us compared with our own Seven-Year Action Plan. Then regarding your second question, in terms of the oil and oilfield services, the future of it, of course, in order for us to have a high-quality future, we definitely need to develop our overseas business, putting it top of our priority, and that represents one of the exclusive ways to achieve high-quality development in the future, in my personal opinion. If I were to expand on this, currently, our international business, how much it accounts for our overall revenue the number currently stands at between 24% or 25%. And in the future, we will accelerate the pace to bring the proportion to the next level -- next order of magnitude. That's the first point I want to highlight here. And second thing, we need to take comprehensive measures to improve our profitability. That second point. And third point, regional-wise, we need to be focused. For one thing, we need to continue to rely on the advantages of CNOOC, including CNOOC's international network and the presence. And on the other hand, we need to continue to deepen our presence in conventional areas, for example, Kazakhstan, an area familiar to you all as well as Mozambique. These areas, we are already closely following the situation there. And fourthly, if we want to do a good job in internationalization, we need to fully unleash the advantages of our technology, in particular, with regards to our conventional equipment. As for the outlook, I believe that when the company makes plan budget plans for 2027, we will give these considerations key attention. Actually, not long ago, we have held a high-quality overseas business development conference, which I would like to have more discussions with you in details in the future if such opportunities allow. Thank you.

[Interpreted] Loh Kai Ye from Jefferies.

[Interpreted] I have 2 questions I would like to have your opinion on. Firstly, I got to know that CNOOC and Sinopec recently have actually have won the Brazilian -- one of the block in the Brazilian deep region at a proportion of 70-30. So I want to ask what are the potential opportunities for COSL? And also, can you shed light on the status quo, the current situation there? The second question is, again, as the previous speakers already touched upon the 15th Five-Year Plan of China and not long ago, actually, just last Friday, China's Energy Bureau also proposed the next 10-year action plan. So I wonder how will these action plans affect your asset allocation considerations because we know that currently, your utilization rate already is at a high level. So I wonder, will there be additional considerations in that respect?

[Interpreted] Thank you for the questions. Let me answer the first question regarding CNOOC sub. CNOOC being granted part ownership or part right in the block in Brazil as a subsidiary specializing in oilfield services under CNOOC with such capabilities to provide comprehensive services, we will definitely pay close attention to and closely monitor relevant opportunities commercially because on the whole, I believe that Chinese companies will be the operators there. Therefore, I think that we will carry out or we will do something, make some efforts in that respect. But on the whole, I believe that in the Brazilian market, with both sides shall follow a market-based principle. There's one more point I want to highlight is that starting from last year, we started having operations in Brazil and COSL is either call it exploration or building up of expertise. We are gradually increasing our familiarity of local business environment. I believe if opportunities allow, that will be conducive to us being part of this project. Thank you. As for the second question regarding our plans for the 15th Five-Year Plan period, how to fulfill instructions, as I already touched upon this question before, this is indeed a question worthy of consideration. As for the current situation, you all -- I believe you all know that the utilization rate of equipment of Chinese players now is at a relatively -- is at a rather high level. And as I mentioned that things will be even tougher during the 15th Five-Year Plan period, and we have to deliver within a shorter time span. Therefore, to some extent, our investment in equipment in terms of investment intensity, such intensity will be even more than during the 14th Five-year plan period or comparing it with our Seven-Year Action Plan. Therefore, in terms of the total holdings of equipment, the total holdings of COSL will increase during the 15th Five-Year Plan period, just like from what you can read from our previous several announcements, be it in terms of the total number of vessels or rigs. We try to build by ourselves, but we do not rule out opportunities to seek purchase opportunities from the market. Of course, the key message here is investment in heavy asset shall be done in areas where there is a high level of certainty. And also we consider both domestic and international.

[Interpreted] Junqi Wang from CICC.

[Interpreted] Firstly, I would like to say and I have 2 questions. The first question, I want you to walk us through the profit, the gross margin of your various business sectors during the third quarter, in particular, regarding the oilfield services gross margin. And also, I wonder if there is a rough guidance regarding your profit from orders placed from the same system. So that's the first question. And the second question concerns rig because we already see very good returns yielded from your projects in Brazil and Norway. Therefore, I would like to ask whether you will consider expanding into new zones and the blocks for your semi as well as any plans for any international plans, international plans for your jackups, any new projects that you are paying attention to?

[Interpreted] Thank you very much for the question. Regarding the first question, our performance in the third quarter on the whole, our operational performance has been rather normal during the third quarter, comparing either with the first half of the year or the second quarter, overall profitability, it is fair to say, is better than the same period. As for the specific technical service sector, we can continue or we can sustain the 17% to 18% operating profit level, something I do see as rather normal. Let me give you a further breakdown. In terms of our technical sector, the first year or the first half of the year operating profit was 17.1% and the number for the first 9 months of this year was 17.2%. It's fair to say that the technical service profitability has maintained steady at a high level. In terms of our drilling sector performance, the number -- the operating profit was 15.5% for the first half of the year and 16% roughly for the third quarter. In other words, this sector has maintained steady performance with a slight increase. Regarding the second question on the drilling sector, on the whole, our oilfield drilling services sector performance is better than expectation at the beginning of the year, in particular, our overseas performance as represented by Norway and Brazil, as you mentioned before. As for the performance domestically, domestic performance is at least on par with the performance overseas. In terms of the drilling vessel, currently, the situation is in tight equilibrium, and we are doing gradual redeployment of such equipment to domestic -- to serve domestic use based on the market situation. As for the overseas market, overseas contracts tend to be of longer term. You may be aware that for Norway, if things go well, we always have the option to extend our contract until the end of the 15th Five-Year Plan period. And the situation for Brazil is the contract is in 1,250 plus, 1,250 contract format. In other words, our overseas operation of equipment resources is basically predictable. And there is some additional information I want to add here for drilling vessels, in particular, international drilling vessels market, we also pay close attention to it, closely following it, making dynamic assessment and making dynamic decisions regarding redeployment of our equipment. And one more piece of information I want to share here is that for the drilling business, at least from the perspective of us as an oil service company, it doesn't matter or such equipment, whether it's domestically deployed or internationally deployed, it doesn't really affect its profitability. The high utilization rate currently internally in China probably is better than whatever impact noncontinuous operation of receipts might have on the company.

[Interpreted] Liu Gary from BOC International.

[Interpreted] First, I want to say -- two questions. Firstly, I wonder because if you look at the revenue growth for the third quarter, revenue growth was not that significant. And the situation for -- from last year was that last year, in Q4 last year, your revenue growth was rather fast quarter-on-quarter. However, during the first quarter, your profit level dropped. So can I ask you to give us some guidance regarding what do you see will happen in Q4 this year? Do you see the situation in Q4 this year to follow a similar -- a similar path to the situation in Q4 last year? And there is a second question, in deepwater drilling sector, if you want to further expand overseas market for your deepwater drilling services, does that mean you need to have equipment -- new equipment because pretty much all the semi-subs have already been deployed overseas, which means that if you want to get new overseas contracts, does that mean you will need to have new equipment?

[Interpreted] To answer your first question regarding our revenue growth for the third quarter, our revenue growth for the third quarter was 3% year-on-year on a similar level compared with the revenue growth for the first half of this year. Of course, over the past couple of years -- over the past 2 years, because of the fast execution of reserve growth and production growth, the execution of the strategy by domestic oil operators as well as our technical capabilities hitting a couple of milestones. Our revenue growth over the past 2 years was rather dramatic. We look forward to the situation and are making corresponding arrangements. As I mentioned that if, say, the goals set for the 15th Five-Year Plan shall be reached or shall be -- the target shall be reached, then oil companies must start making some arrangements doing something starting from '27, '28. Therefore, we believe that on the whole, our revenue growth will be -- we can maintain slight growth for our revenue for this year. And then there is one more point I want to add to answer your first question. Of course, COSL will never give up on expansion of our overseas market. So if everything goes well, we'd expect continued revenue growth from our overseas business, in particular, even you exclude or even after balancing or after offsetting whatever slight impact we suffer from the Middle East. And there is one point I want to emphasize here that we hope to expand markets in market expansion in Middle East as well as other parts of the world to help our revenue growth to even better -- to achieve even better revenue growth. Then to answer your second question regarding overseas drilling expansion. When it comes to overseas drilling, we are currently making plans for deepwater drilling vessels, and we are benchmarking against international or overseas deepwater operational indicators to determine on the technical parameters of all these deepwater drilling vessels under plan. And we also pay close attention to the relevant demand from overseas on the deepwater market.

[Interpreted] [indiscernible] from Macquarie Group.

[Interpreted] I have 2 questions. The first question is, you mentioned that your current equipment utilization rate is rather high. So I wonder, when it comes to signing new contracts with CNOOC, are there possibilities for slightly increasing the day rate for either your semi-subs or jack-ups? Any possibility there? And the second question is, you mentioned that your demand from CNOOC, your demand from overseas, your demand from domestic market, such demand is strong. You also have plans to -- for new vessel building and for new equipment building. So the question is, -- how will you prioritize resource and equipment allocation? Will you prioritize areas with higher day rates? Or will you prefer to find a better balance there.

[Interpreted] To answer your first question, indeed, this year is the first year of the new 3-year with CNOOC on the whole. The equipment day rate has been overall maintained steady. However, as you rightfully pointed out that we do see addition of additional award or reward mechanism, specifically in way of classification. In other words, slight increase of day rate for equipment with good operational performance. Therefore, if you do a dissection of our revenue for the first 3 quarters of this year for the drilling, part of the revenue growth is indeed attributable to the recognition by CNOOC by way of us ranking high in CNOOC's ranking, and we hope to, with our efforts, make it more of a longer-term normalized situation. As for the second question, this is also a question that we, as management must give consideration to, meaning that there are a lot of things or a lot of projects to be delivered, whereas our equipment is rather tight, then how to make the proper allocation of the tight equipment resources. Personally, I believe one sentence is enough to summarize, meaning with the precondition being the safety of the vessels guaranteed, we strive to achieve as much as we can 100% if not 100%, but as high -- as much as we can, full utilization of the vessels when security of such vessels is guaranteed without leaving them idle. I believe that this indicator will contribute much, much more to our overall operational performance compared with any slight change in the day rate. One more thing for COSL, our drilling services capability domestically and internationally are almost on par more than or they are double digits on average, domestic, international on par.

[Interpreted] One additional question I want to add here because you mentioned that your parent company has plans to make more CapEx investment. Does that mean this will also be reflected in their continuous stronger demand for your oil and gas sector -- oil and gas service, in particular, if such CapEx increase is sustained, how will it affect your longer-term goals for your revenue and market share for your oil and gas business?

[Interpreted] Then to answer this question, I think that the logic makes sense here because firstly, for oil technical services, this sector contributes more than 50% of our revenue. We have the confidence with and if our parent company increase their CapEx investment, we do have such capabilities and resources to cater to the needs because of the demand. That's the first concept. The second concept is that the technical sector -- the technical service sector, its market share in China is definitely going to be very high. And additionally, as I mentioned that we have to expand our overseas development based on what kind of capabilities -- the only way is for a large part is to rely on our oilfield technical services, be it in terms of investing in new areas or going overseas with project or with our domestic or with our own efforts.

[Interpreted] Due to time constraints, we will now take one final question from an investor. I will ask the conference operator to connect to the next investor.

[Interpreted] Yiming Wang from Bank of America.

[Interpreted] Apologies for joining the call rather late. I have 2 questions. The first question is about your FX gain loss for the third quarter because I saw that you didn't disclose that specific number. Like what you did for the first 2 quarters. Therefore, I personally assume that the gain loss from FX conversion for the third quarter is relatively smaller compared with the situation in the first 2 quarters. Then I would like to have your answer here. And also, I wonder if the gain loss from FX conversion becomes smaller, is it because of the slowing appreciation trend of RMB? Or is it because COSL has introduced some new methods to manage your forex? That's the first question. And the second question concerns your CapEx because from the cash flow perspective, we're happy to see that your operating cash flow in the third quarter, just like what -- just like the guidance provided by the management has turned positive during the third quarter. However, if you look at CapEx, our investment in fixed asset investment for the first 3 quarters, less than RMB 3 billion, still falling short of the CapEx guidance given at the beginning of the year. Therefore, my question is, do you see your CapEx guidance given at the beginning of this year be fulfilled before the end of this year? If that's the case, that means that you will have to do a big CapEx expenditure for the fourth quarter. If that is the case, is it because of settlement? Or is it because of plans to do additional asset purchase?

[Interpreted] To answer your first question, thank you for asking the question. But for the first question, I'm sorry to say, but the situation for our FX loss was during the third quarter was no better than the first half of the year. It's fair to say that with the depreciation of RMB, our first 3 quarter FX loss increased from the RMB 560 million for the first half of the year to RMB 720 million covering the first 3 quarters. And even you do a year-on-year comparison, we still suffer RMB 500 million FX loss, mainly is a result of our historical dealings with overseas institutions as well as the difference in the denomination currency is not because of anything wrong with our overseas operations. To answer your second question on CapEx, as you pointed out that our CapEx for the first 3 quarters of this year was less than RMB 3 billion. even less than the same period last year. And also because the beginning of the year, we gave the guidance of RMB 8.4 billion, which means that we are rather slow in fulfilling the CapEx guidance. Some of the CapEx projects have already been incorporated in our future vessel building plans and such plans and such CapEx will be gradually released down the road. And some of the projects, we have taken the initiative to make adjustments, and we take the initiative in cutting back on some of the projects because of operational arrangements. But currently, we have yet given up plans to buy additional drilling vessels. But on the whole, CapEx this year shall be slightly -- shall be almost on par with the situation last year, but might be slightly less than the guidance given at the beginning of the year. Last but not least, I want to add a couple of points already brief already shared with you before. So in summary, whenever we make CapEx decisions, we measure -- we follow the strategy of measuring our capabilities in making CapEx decisions. That's the first point. And second point is whenever we must do something, we will be resolute in making such things. And thirdly, there is no strong correlation between whether we have good -- we have -- whether we have high or low CapEx vis-a-vis our return to investors. There is no strong correlation there.

[Interpreted] Thank you for your questions and for the management team's detailed responses. We appreciate your continued interest and support for COSL. As we are approaching the end of the conference scheduled time, today's conference call will now conclude. If you have any further questions, please feel free to contact the company at any time. And this concludes today's conference call. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]