SINOPEC OILFIELD SERVICE CORPORATIONssc.sinopec.com/sosc/en/investor/com_intro/... · • Fuling Shale Gas: the first successful commercial shale gas project outside North America

SINOPEC OILFIELD SERVICE CORPORATION

SSC

SSC

中石化石油工程技术服务股份有限公司SINOPEC OILFIELD SERVICE CORPORATION

March，2018

2017 Annual Results Presentation

SINOPEC OILFIELD SERVICE CORPORATION

SSCDisclaimer

1

The information contained in this document has not been independently verified. No representation or warranty

expressed or implied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or

correctness of such information or opinions contained herein. The information contained in this document should be

considered in the context of the circumstances prevailing at the time, is subject to change without notice and has not

been, and will not be, updated solely to reflect material developments which may occur after the date of the

presentation. It is not the Company’s intention to provide, and you may not rely on these materials as providing, a

complete or comprehensive analysis of the Company, or its financial or trading position or prospects. Neither of the

Company nor any of its affiliates, advisers or representatives shall have any liability whatsoever (in negligence or

otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in

connection with this document.

This document contains statements that reflect the Company’s current beliefs and expectations about the future as of

the respective dates indicated herein. These forward-looking statements are based on a number of assumptions about

the Company’s operations and factors beyond the Company’s control and are subject to significant risks and

uncertainties, and accordingly, actual results may differ materially from those described in these forward-looking

statements. The Company undertakes no obligation to update these forward-looking statements for any events or

developments including the occurrence of unanticipated events that occur subsequent to such dates.

This document does not constitute, in whole or in part, an offer for subscription or for sale or invitation to purchase or

subscribe for any shares of Sinopec Corp., Sinopec Oilfield Service Corporation and related companies on any

exchanges. No part of this document shall form the basis of or be relied upon in connection with any contract or

commitment whatsoever.

Section 1: Operations in 2017

Section 2: Financials in 2017

Section 3: 2018 Outlook

Table of Contents

Section 1: Operations in 2017

SINOPEC OILFIELD SERVICE CORPORATION

SSC

4

Overview

国家优质工程金质奖

Geophysics Drilling Engineering Logging and Mud Logging Downhole Operation Engineering Construction

Advanced Equipment• Geophysics: 78 sets of seismic acquisition equipment, 189 sets of vibroseis, 35,388 full digital seismic 3C

geophones

• Drilling: 678 onshore drilling rigs，of which 257 for wells at depth of more than 7,000 meters and 14 offshore

drilling platforms

• Logging: 127 image logging systems, 142 rapid logging platforms, 401 sets of comprehensive logging

instrument

• Downhole operation: 150 sets of type-2500 and type-3000 fracturing assembly, 52 sets of workover rigs with

power higher than 750 HP, 6 offshore operation platforms

Strong R&D capability

• 2 members of the Chinese Academy of Engineering

• 73 professor-level researchers and nearly

• 1,600 senior researchers

• 3,500 research, design, laboratory and development staff

• 3 research institutes

• 3 design companies

• 51 various professional

technical institutes

Special Prize

National Science and Technology ProgressAward 2012&2013

Golden Prize of the

National Quality

EngineeringTechnologies for safe and efficient

development of extra-large ultra-

deep high acid gas fields &

industrial applications

Sichuan-East China

Gas Transmission

Pipeline Project

Rich Experiences• Fuling Shale Gas: the first successful commercial shale gas project outside North America

• Puguang Gas Field: the largest marine-facies high-sulphur gas field in China

• Exploration and Development of Multiple Reservoirs in Shengli: the second largest oilfield in

China

• Tahe Oil Field: large oil field with1.2 billion-ton reserve

• Yuanba Gas Field: the deepest marine-facies reservoir in China

• North Ordos Oil and Gas Field: the first horizontal well construction demonstration area in China

SINOPEC OILFIELD SERVICE CORPORATION

SSC

24

-16,115

-10,583

-18000

-14000

-10000

-6000

-2000

2000

2015 2016 2017

Overall Operation

5

52.343.6

54.1

20

30

40

50

60

70

80

90

100

2015 2016 2017

RMB Million54,700

32,200 31,300

0

10,000

20,000

30,000

40,000

50,000

60,000

2015 2016 2017

49%

15%

36%

55%

18%

27%

37,502

22,550 28,370

8,939

7,362 7,130

13,908

13,012 12,986

0

20,000

40,000

60,000

80,000

2015 2016 2017

Domestic Inside SINOPEC Domestic Outside SINOPEC Overseas

60,349

30%

17%

53%

42,92448,486

27%

58%

15%

62%

15%

23%

Average Price of Brent Oil Operating Revenue of 2017

USD/Barrel RMB Million

RMB Million

Net Profit of 2017 (ASBE)SINOPEC E&P CAPEX

SINOPEC OILFIELD SERVICE CORPORATION

SSC

Drilling Footage（10,000 m）

23,360

15,870

20,683

0

5,000

10,000

15,000

20,000

25,000

2015 2016 2017

810

551

736

0

200

400

600

800

1,000

2015 2016 2017

14,541

12,641 13,686

0

5,000

10,000

15,000

20,000

2015 2016 2017

43,728

14,172

22,155

0

10,000

20,000

30,000

40,000

50,000

2015 2016 2017

Performance by Segments

Geophysics Drilling Engineering

Logging & Mud Logging Downhole Operation Engineering Construction

Completed Contract（RMB Million）

Downhole Operation（Well Times）

6

Mud Logging Footage（10,000 m）

Standard Meter for Logging（10,000 m）

2D Seismic（Km） 3D Seismic（Km2）

33.6%

30.3% 905

531

666

0

200

400

600

800

1000

2015 2016 2017

25.4%

5,409

4,396

5,144

0

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017

17.0% 14,600

12,100 11,900

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2015 2016 2017

1.7%

56.3%

8.3%

SINOPEC OILFIELD SERVICE CORPORATION

SSC

7

Market Expansion

➢ Overseas market : New contracts valued USD 1.9 billion, completedcontracts valued USD 2. 02 billion and backlog contracts valued USD 4.47billion

Middle East : Signed (renewed) contracts of 19 drilling rigs (USD 470million) in Saudi Arabia; obtained qualifications from Saudi Aramco for gaswells, coiled tubing and mechanical repairs service; obtained KJO offshoredrilling rigs and comprehensive service qualifications; Signed contract of26 drilling and workover rigs (USD 200 million) and contract of loggingservice of 5+1 years (USD 26 million) in Kuwait

South America : 35 wells for ITT Turnkey Drilling Project (USD 150 million)in Ecuador

Africa : Signed contract of 2 offshore drilling projects (USD 150 million) inNigeria; won four bids for geophysical exploration projects (USD 71.81million) in Algeria; Entered Congo’s logging market for the first time.

Other Overseas Markets : Signed the First Phase of No.5 Natural GasPipeline Project in Thailand (USD 196 million) and Geothermal PowerGeneration Drilling Project in Turkey (USD 84.61 million)

➢ Inside Sinopec: Serviced in ultra-deep oil & gas field in Shunbei,natural gas field in Southwest and tight gas field in Ordos;Constructed Wen-23 gas storage project and First Phase ofXinjiang-Guangdong-Zhejiang Pipeline Project (3.16 billion yuan);Developed 15 blocks of difficult-to-produce reservoir, drilled 23wells and repaired 54 long-term shutdown wells in Shengli Oilfield

➢ Outside Sinopec: Completed geological survey of shale gas inwestern Hubei (200 million yuan); Provided vessel services in EastChina Sea Oilfield (660 million yuan); Awarded the Rizhao-JingboOil Products Pipeline Project (2.63 billion yuan) and National OilReserve Construction Project (900 million yuan)

➢ Emerging Business: New contract value of emerging businessincluding underground pipe network detection, land rightconfirmation and marine surveying and mapping amounted to 108million yuan, an increase of 31% year-on-year; new contracts forenergy conservation and environmental protection services such assolid waste disposal and soil remediation amounted to 169 millionyuan, an increase of 133% year-on-year

1227

558 493

1068

607 438

917

457 237

0

500

1000

1500

Middle East Africa Americas2015 2016 2017

USD Million

1265

422262

1292

322 260

1183

365 333

0

500

1000

1500

Middle East Africa Americas2015 2016 2017

21,200

9,000

30,300

10,600

0

10,000

20,000

30,000

40,000

Inside Sinopec Outside Sinopec

2016 2017

RMB Million

22,500

7,800

26,400

7,200

0

10,000

20,000

30,000

40,000

Inside Sinopec Outside Sinopec

2016 2017

RMB Million

New Contracts Value Completed Contracts Value

New Contracts Value

Completed Contracts ValueUSD Million

Overseas MarketDomestic Market

SINOPEC OILFIELD SERVICE CORPORATION

SSC

➢ Diverted surplus staff through multiple channels,

encouraged employees to undertake external businesses

and provide labor services, and accumulatively reduced

4,000 staff

Deepening Reform

8

➢ Reduced operating units to 80, compared to 97 in 2014

➢ Cut administrative offices and departments directly under

operating units by 19%, from 996 to 806

➢ Consolidated headquarters departments from 17 to 12,

reduced by 30%

➢ Cut 179 professional crews

➢ Phased out 267 sets of old drilling rigs and other

equipment with 2.123 billion yuan write-down

2113 19781799

0

500

1000

1500

2000

2500

2015 2016 2017

Number of Crews

106.288.6 84.6

50

100

150

2015 2016 2017

Total Number of Staff

➢ Integrated auxiliary services and established professional

teams

➢ Established contracting operating mechanism. Motivated

employees to start a business, innovate and create profit

➢ Reduced 63 grassroot units of auxiliary services and 48

grassroot units applied contracting mechanism

Thousand Person

Reducing Excess Capacity

Downsizing Organization Integrating Auxiliary Services

Diverting Surplus Staff

SINOPEC OILFIELD SERVICE CORPORATION

SSCTapping Potential and Enhancing Efficiency

Cost Reduction in 2017

Cost Reduction of

1.51 Billion Yuan

231

344

363

217

183

72 97

Organization Operating Production Operating

Procurement Labor Output

Administrative & Sales Outsourcing

Maintenance

RMB Million

9

4,070

1,340

740

0

1,000

2,000

3,000

4,000

5,000

2015 2016 2017

RMB Million

Capital Expenditure

SINOPEC OILFIELD SERVICE CORPORATION

SSCTechnology R&D

10

Patents：494 new patents applications filed, 322 patents granted

Scientific Rewards ：High-Efficiency Exploration and Development in Fuling Large-

scale Marine Shale Gas Field won the first class prize of National Science and

Technology Progress Award. National 863 program Radar Imaging Log Prototype

Development passed acceptance

Strengthened Technology Innovation

Ultra-Deep Drilling

Unconventional Oil and Gas

Geophysical Technology

➢ Refreshed the record of deepest well in Asia by ShunbeiAppraisal-1 well (8430m) and Appraisal-2 well (8433m) insuccession

➢ Improved shale gas engineering technology to support thecapacity construction and peripheral deep layer exploration inFuling shale gas field

➢ Strived to make technological breakthrough in leak-proof andplugging in tight oil and gas reservoirs in Ordos, one-shotplugging success rate reached 92%

➢ Single point high-density 3D seismic technology realizedindustrialized application in eastern matured region; andsophisticated mountain seismic exploration integratedtechnology was widely applied overseas

Offshore Drilling➢ Made significant breakthrough in drilling and coring of gas

hydrate offshore. Completed the world’s first sidetracking in24 ”riser in the South China Sea

Section 2: Financials in 2017

SINOPEC OILFIELD SERVICE CORPORATION

SSCMain Financial Indicators

12

Operating Cash Flow Total Assets and Net Assets

85,30874,493

61,943

24,637

8,442

-2,097-20000

0

20000

40000

60000

80000

100000

2015 2016 2017

Total Assets Net Assets

RMB MillionOperating Revenue

49%

15%

36%

55%

18%

27%24

-16,115 -10,583

0.04%

-37.54%

-21.83%

-40%

-30%

-20%

-10%

0%

10%

-20,000

-15,000

-10,000

-5,000

0

5,000

2015 2016 2017

Net Profit Net Profit Margin（Right Axle）

Net Profit & Margin

0

20,000

40,000

60,000

80,000

2015 2016 2017

Domestic Inside Sinopec Domestic Outside Sinopec

Overseas

60,349

30%

17%

53%

42,92448,486

27%

58%

15%

62%

15%

23%

2,576

-3,907

419

-4000

-2000

0

2000

4000

2015 2016 2017

RMB Million

RMB Million

RMB Million

SINOPEC OILFIELD SERVICE CORPORATION

SSC

13

Operating Revenue

5,2853,606 3,980

2015 2016 2017

Gross Profit Margin% of Total Revenue

Geophysics

Drilling

Loggingand

Mud Logging

DownholeOperation

EngineeringConstruction

28,56119,369

24,719

2015 2016 2017

RMB Million

92%

8%

48%

52%

96%

4%

91%

9%

75%

25%

8.3%

-16.7%

5.6%

-20%

-10%

0%

10%

2015 2016 2017

8.4%

-28.3%-7.2%

-40%

-20%

0%

20%

2015 2016 2017

16.1%

-33.4%-14.0%

-40%

-20%

0%

20%

2015 2016 2017

11.7%

-23.5%

-7.9%

-30%

-20%

-10%

0%

10%

20%

2015 2016 2017

7.6%

-24.9%

-5.6%

-30%

-20%

-10%

0%

10%

2015 2016 2017

2,4461,538 1,811

2015 2016 2017

6,916

3,868 4,189

2015 2016 2017

15,379 12,827 11,741

2015 2016 2017

436

-603

225

2015 2016 2017

808

-908

-333

2015 2016 2017

393

-514

-253

2015 2016 2017

2,383

-5,472

-1,788

2015 2016 2017

1,170

-3199

-652

2015 2016 2017

Gross Profit

Financials of 5 Business Segments

SINOPEC OILFIELD SERVICE CORPORATION

SSCProfitability and Analysis of A/R and Inventory

14

Gross Profit & MarginRMB Million

Operating Cost

53,988 53,037 50,431

0

10,000

20,000

30,000

40,000

50,000

60,000

Major Business Cost

2015 2016 2017

4.9%

5,780

-10,592

-2,490

9.58%

-24.68%

-5.14%

-30%

-20%

-10%

0%

10%

20%

-15,000

-10,000

-5,000

0

5,000

10,000

2015 2016 2017

Gross Profit Gross Profit Margin（Right Axle)

14,769

9,318 7,803

0

5000

10000

15000

20000

Inventory

2015 2016 2017

16%

27,121 23,908

16,962

0

5000

10000

15000

20000

25000

30000

Accounts Receivable

2015 2016 2017

29%

Changes in Accounts Receivable Changes in Inventory

RMB Million

RMB Million RMB Million

SINOPEC OILFIELD SERVICE CORPORATION

SSCAnalysis of Solvency

15

71.0%

88.7%

103.4%

15.0%24.3%

29.2%

30.5%

64.9%

115.6%

0%

20%

40%

60%

80%

100%

120%

140%

2015 2016 2017

Debt to Asset Ratio

Interest Bearing Debt to Asset Ratio

Debt to Equity Ratio

18,740

11,305

Credit Facility for Loan from Sinopec Financial Institutions

Comprehensive Credit Facility from Banks (Not for Loan）

RMB Million

Structure of Assets and Liabilities Credit Facility from Financial Institutions

SINOPEC OILFIELD SERVICE CORPORATION

SSC

4,751

1,000

201

Used

Temporary Supplement of Working Capital

Unused

16

No

n-P

ub

lic Pla

cem

en

tin

Jan

uary

20

18

RMB MillionUse

of P

revio

us

Pro

ceed

s

Non-Public Placement

Sinopec Group1,503,568,702 shares

Qixingongying Scheme23,148,854 shares

Sinopec Group Qixingongying Scheme

Subscription of A-Shares

Sinopec Century Bright2,595,786,987 shares

China Structural Reform Fund 719,174,495 shares

Sinopec Century Bright China Structural Reform Fund

Subscription of H-Share

➢ Issued 1.527 billion A-shares, raising 4 billion yuan. Sinopec Group subscribed for 3.94 billion yuan, and QixingongyingScheme subscribed for 60 million yuan, subscription price was 2.62 RMB/share

➢ Issued 3.314 billion H-shares, raising HKD 4.47 billion. Sinopec Century Bright subscribed for HKD 3.5 billion, ChinaStructural Reform Fund subscribed for HKD 970 million, subscription price was 1.35 HKD/ share

➢ Shareholding of Sinopec Group increased from 65.22% to 70.18%

98%

2%

78%

22%

Raised funds of 50.91 million yuan used in 2017

Section 3: 2018 Outlook

SINOPEC OILFIELD SERVICE CORPORATION

SSCIndustry Outlook

18

Brent Crude Oil outlook

17.3

24.0

13.7

16.0

9.4

4.8

15.8

25.0

19.0

13.5

11.0

7.4

2017 2018

USD Billion

➢ World economic recovery will continue to accelerate. Global crude oil market will be rebalancing.

It is expected that the international oil price will rise with fluctuations

➢ E&P CAPEX of both domestic and overseas oil companies will continue to rebound, which will

lead to continued recovery of oilfield service

➢ Despite the gradual pick-up of international oil prices, low oil price scenario is still the biggest

challenge faced by the oilfield service industry. Market competition will remain fierce

6562

5762

70

62

49

69

HSBC DB Citi DNB

2018 2019

USD/Barrel

Changes in Oilfield Service

Industry

Predicted CAPEX of Major Upstream Enterprises

Source： Deutsche Bank Research, Bloomberg, March 8th 2018 Source： Company’s Information, Deutsche Bank Research, March 8th 2018

SINOPEC OILFIELD SERVICE CORPORATION

SSC

4396

5,144 5,500

0

1000

2000

3000

4000

5000

6000

2016 2017 2018

531

666 750

0

200

400

600

800

2016 2017 2018

15,870

20,683

23,500

0

5,000

10,000

15,000

20,000

25,000

2016 2017 2018

551

736 850

0

200

400

600

800

1000

2016 2017 2018

12,641 13,686 14,520

0

5,000

10,000

15,000

20,000

2016 2017 2018

14,172

22,155

16,200

0

5,000

10,000

15,000

20,000

25,000

2016 2017 2018

Work Volume Plan in 2018

Geophysics Drilling

Logging & Mud Logging Downhole Operation Engineering Construction

Drilling Footage（10,000 m）

Completed Contract（RMB Million）

Downhole Operation（Well Times）

19

Mud Logging Footage（10,000 m）

Standard Meter for Logging（10,000 m）

2D Seismic（Km） 3D Seismic（Km2）

12,100 11,900

14,000

0

5,000

10,000

15,000

2016 2017 2018

SINOPEC OILFIELD SERVICE CORPORATION

SSC

20

Market Development

Do

mestic

Insid

e S

ino

pec

Do

mestic

Ou

tside S

ino

pec

Overse

as

➢ Planned new contracts value of 33.2 billion yuan

➢ Service for ultra-deep oil & gas field in Shunbei, natural gas field in Southwest and tight gas field in Ordos

➢ Construction of Wen-23 gas storage, Xinjiang-Guangdong-Zhejiang Pipeline, Rizhao-Puyang-Luoyang crude oil

pipeline, Ordos-Anping-Cangzhou gas pipeline and other key projects

➢ Capacity construction of Fuling shale gas and new cooperation models in Weiyuan, Yongchuan and other areas

➢ Promoting cooperation model for developing difficult-to-produce reservoir in Shengli Oilfield, building new

capacity of 400,000 ton/year and repairing 700 long-term shutdown wells

➢ Planned new contracts value of 10 billion yuan

➢ Deepening strategic cooperation and consolidating CNPC market

➢ Expanding shale gas market in Southwest, BP shale gas cooperation block and local shale gas blocks

➢ Promoting integrated reservoir services and consolidating China Geological Survey market

➢ Intensifying marketing efforts on energy conservation and environmental protection, geographical surveying

and mapping, pipeline MRO to foster new market growth drivers

➢ Unifying management of overseas operations, integrating and optimizing resources, and planned new contracts

value of USD 2.2 billion

➢ Expanding high value-added businesses such as integrated oilfield services, cementing, logging and mud

logging, energy conservation and environmental protection

➢ Saudi Arabia: Developing Saudi Aramco market of well drilling, turnkey drilling projects, cementing, drilling mud

and other new businesses, resuming geophysics and engineering construction

➢ Kuwait: Providing integrated services, deep well drilling and logging, cementing

➢ Kazakhstan: Focusing on SIPC, CNPC and KazMunaiGas

SINOPEC OILFIELD SERVICE CORPORATION

SSC

21

➢ Promote the institutional construction centering project management. Improve project profitability through stringent project management and process control

➢ Strengthen subcontracting management, reduce outsourcing expenses ➢ Strengthen full-caliber and full-process cost control, achieve annual cost reduction target of 3.1 billion yuan.➢ Promote sharing of information, capital, technology, equipment, etc. Improve overall management efficiency

Actively Promote Fine Management

➢ In accordance with market demand, dynamically adjust and optimize team and equipment scale and resources allocation, and significantly reduce crew idling rate and expenses

➢ Streamline management level and organization, clearly define positioning and responsibilities at each level. Promote more dynamics and robust mechanism

➢ Complete resettlement of surplus personnel and plan to reduce 3500 staff

Promote Market-oriented Management and Operation

➢ In accordance with professionalization and specialization, optimize and reinforce core business of well drilling,geophysics, engineering construction, offshore engineering. Integrate the similar-business subsidiaries unitsby specialization and regions. Develop specialized services by competitive advantages. Improve resourcesallocation

➢ Boost transformational development and vigorously promote energy conservation and environmentalprotection, geographical surveying and mapping, and pipeline MRO. Foster new growth drivers

➢ Promote contracting of auxiliary (general) business, and strengthen auxiliary professional team and newbusiness development

Optimize and Reinforce Main Business

Deepening Reform and Fine Management

SINOPEC OILFIELD SERVICE CORPORATION

SSCEnhancing Technology Innovation

22

Continuously improve the R&D system and accelerate the construction of technology centers

Foster featured core technology and promote transformation

➢ R&D in RSS drilling, HTHP storage logging tools, node seismometer➢ Promote the automation of drilling rigs, the application of broadband acceleration

detectors, the construction of large-diameter high-grade long-distance pipelines,and the commercialization of mid-deep water and ocean engineering designtechnologies

➢ Speed up the development of energy conservation and environmental protection technologies such as solid waste disposal, soil remediation, pipeline MRO, CCUS(carbon capture, utilization and storage)

➢ One-trip drilling technology in long horizontal section of deep shale gas➢ Safe and efficient drilling technology for extra-deep well in Shunbei, Xinjiang➢ ROP-raising technology for difficult-to-drill complex formation in western Sichuan➢ Leak-proof and plugging technology for complex formation in Hangjinqi, Ordos

SINOPEC Research Institute of Petroleum Engineering

Shengli R&D center, Zhongyuan R&D center, Geophysics R&D center，

Oil and Gas Test Tech Center, Acid Oil and Gas Field Tech Center, E&C

Design and Innovation Center

Focus on key projects and accelerate the application of R&D results

SINOPEC OILFIELD SERVICE CORPORATION

SSCQ&A

23

http://ssc.sinopec.com

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