1 Sinopec Yizheng - H [1033.HK] We believe Sinopec Yizheng, after completing the acquisition of Sinopec Oilfield Service Corporation (SOSC), will face several challenges in 2015 and 2016: (1) Lack of sustainability in the company’s construction engineering revenue after the completion of the Xinjiang-Guangdong-Zhejiang coal-to-gas pipeline; (2) slowdown of drilling activities in the shale gas project in Fuling, Sichuan, after 2015; (3) poten- tial contracts cut by overseas customers. Besides, the recent investigation of SOSC’s ex-Vice Chairman will add uncertainty to the company’s outlook. We expect it will be challenging for Yizheng to reach its profit target for 2015E, as we believe weaker revenue will make it difficult to achieve meaningful margin expansion. We expect Yizheng’s earnings growth to slow starting 2016E. Initiate with SELL and a target price of HK$1.97 (based on 6.7x 2015E PER, 10% discount to peer average). Xinjiang-Guangdong-Zhejiang coal-to-gas pipeline construction will be “one-off” in nature. SOSC stated clearly that its construction engineering rev- enue in 2015E will be driven by this project. We see this large-scale project as a “one-off” contribution, and completion will imply that SOSC needs to find a new large-size project to support revenue growth, which we believe is highly uncertain in terms of visibility at this stage. Fuling shale gas drilling activities may peak in 2015E. According to Si- nopec’s existing drilling plan for Fuling, the number of drilling wells is expected to decline from 100/135 in 2014E/2015E to 107/75 in 2016E/2017E. We expect the additional wells in phase two or other new projects will be similar to that in phase one, suggesting a slowdown of SOSC’s drilling revenue. Increasing overseas revenue suggests higher risk. SOSC grew its interna- tional revenue share from 15% in 2011 to 25% in 1H14. SOSC targets to main- tain the oversea revenue portion at 25% in 2015E. SOSC mentioned that over- seas revenue will be driven by new contracts on offshore rigs and seismic geo- physical operations in Saudi Arabia and Kuwait. We believe these contracts are subject to cancellation risks given the recent sharp decline in oil price. Challenging to reach profit target. We believe SOSC’s own profit target is based on assumptions when the oil price was close to US$100/barrel, vs. US$66 currently. Our earnings forecast for 2015E is 15% below the company’s projection and we only expect 5% increase in 2016E earnings. Upside risks: (1) Sharp rebound of oil and gas price; (2) stronger than ex- pected order flow; (3) better than expected cost reduction and efficiency im- provement. Oilfield Services Sector Three negatives factors suggest downside risk to 2015 earn- ings; Initiate with SELL SELL (Initiation) Close: HK$2.51 (Dec 8, 2014) Target Price: HK$1.97 (-22%) Share Price Performance Market Cap US$3,422m Shares Outstanding (before/after restruc- turing) 6,000m/12,809m Auditor (for SOSC) Grant Thornton Free Float 28% 52W range HK$1.35-4.11 3M average daily T/O US$20m Major Shareholding (after restructuring) Sinopec Group (72%) December 9, 2014 Wayne Fung, CFA —Analyst (852) 3698-6319 [email protected]Harry He—Research Assistant John Mulcahy—Head of Research (852) 3698-6889 [email protected]Key Financials (RMB m) 2012 2013E 2014E 2015E 2016E Revenue 87,337 89,729 81,704 85,758 85,382 Change (YoY) 17.6% 2.7% -8.9% 5.0% -0.4% EBIT 1,827 2,794 3,997 4,845 4,795 Change (YoY) 53.9% 53.0% 43.0% 21.2% -1.0% Core net profit 1,046 1,515 2,415 2,986 3,129 Change (YoY) -9.4% 44.9% 59.4% 23.7% 4.8% Core EPS (HK$) - - 0.239 0.296 0.310 Change (YoY) - - - 23.7% 4.8% ROE 6% 7% 10% 11% 10% Net debt/equity 69% 57% 50% 42% 20% PER (core earnings) (x) - - 10.5 8.5 8.1 Dividend yield - - 0.0% 0.0% 0.0% PBR (x) - - 1.0 0.9 0.8 EV/EBITDA (x) - - 3.4 3.1 3.1 Sources: Company, CGIHK Research estimates
32
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Sinopec Yizheng H [1033.HK] SELL...Share Price Performance Market Cap US$3,422m Shares Outstanding (before/after restruc-turing) 6,000m/12,809m Auditor (for SOSC) Grant Thornton Free
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1
Sinopec Yizheng - H [1033.HK]
We believe Sinopec Yizheng, after completing the acquisition of Sinopec Oilfield Service Corporation (SOSC), will face several challenges in 2015 and 2016: (1) Lack of sustainability in the company’s construction engineering revenue after the completion of the Xinjiang-Guangdong-Zhejiang coal-to-gas pipeline; (2) slowdown of drilling activities in the shale gas project in Fuling, Sichuan, after 2015; (3) poten-tial contracts cut by overseas customers. Besides, the recent investigation of SOSC’s ex-Vice Chairman will add uncertainty to the company’s outlook. We expect it will be challenging for Yizheng to reach its profit target for 2015E, as we believe weaker revenue will make it difficult to achieve meaningful margin expansion. We expect Yizheng’s earnings growth to slow starting 2016E. Initiate with SELL and a target price of HK$1.97 (based on 6.7x 2015E PER, 10% discount to peer average).
Xinjiang-Guangdong-Zhejiang coal-to-gas pipeline construction will be
“one-off” in nature. SOSC stated clearly that its construction engineering rev-enue in 2015E will be driven by this project. We see this large-scale project as a “one-off” contribution, and completion will imply that SOSC needs to find a new large-size project to support revenue growth, which we believe is highly uncertain in terms of visibility at this stage.
Fuling shale gas drilling activities may peak in 2015E. According to Si-
nopec’s existing drilling plan for Fuling, the number of drilling wells is expected to decline from 100/135 in 2014E/2015E to 107/75 in 2016E/2017E. We expect the additional wells in phase two or other new projects will be similar to that in phase one, suggesting a slowdown of SOSC’s drilling revenue.
Increasing overseas revenue suggests higher risk. SOSC grew its interna-
tional revenue share from 15% in 2011 to 25% in 1H14. SOSC targets to main-tain the oversea revenue portion at 25% in 2015E. SOSC mentioned that over-seas revenue will be driven by new contracts on offshore rigs and seismic geo-physical operations in Saudi Arabia and Kuwait. We believe these contracts are subject to cancellation risks given the recent sharp decline in oil price.
Challenging to reach profit target. We believe SOSC’s own profit target is
based on assumptions when the oil price was close to US$100/barrel, vs. US$66 currently. Our earnings forecast for 2015E is 15% below the company’s projection and we only expect 5% increase in 2016E earnings.
Upside risks: (1) Sharp rebound of oil and gas price; (2) stronger than ex-
pected order flow; (3) better than expected cost reduction and efficiency im-provement.
Oilfield Services Sector Three negatives factors suggest downside risk to 2015 earn-
Engineering planning, procurement and construction
Abandonment operation
Workover, fracturing & acidizing
Mud logging
Logging
18
Deal structure
Yizheng announced its long-awaited restructuring plan in mid-September this
year. Yizheng will sell its existing chemical products business to Sinopec
[0386.HK; Not rated] and purchase Sinopec’s parent Sinopec Group’s oilfield
services arm. The restructuring plan consists of two major parts as follows:
Disposal agreement and repurchase agreement. Yizheng will sell its existing
chemical products business to Sinopec at a consideration of RMB6,491m. At the
same time, Yizheng will repurchase its 2,415m A-shares held by Sinopec (40.25%
of Yizheng’s total current o/s shares) at a cost of RMB6,303m and will de-register
the repurchased shares. The repurchase price of RMB2.61 (HK$3.24) represents
an 83% premium over the H-share closing price of Yizheng [HK$1.77 at that time].
The difference of RMB188m (RMB6,491 minus RMB6,303m) will be paid by Si-
nopec in cash. Yizheng expects it will report a net gain of RMB1,145m on the dis-
posal.
Acquisition agreement. Yizheng will acquire Sinopec Oilfield Services Corpora-
tion (SOSC) from Sinopec Group at a consideration of RMB24,075m. The pay-
ment will be settled by issuing 9,224m new shares at a price of RMB2.61
(HK$3.24).
In our view, the transactions are value accretive to Yizheng. First, the previous
chemical products business has been loss making since 2012, while the disposal
price represents 1.2x PBR (book value as of end-June 2014) which is positive to
Yizheng. Second, Yizheng will need to issue 6,809m new shares (9,224m minus
2,415m) to finance the deal (representing 53% of the enlarged outstanding capi-
tal), but at a price of HK$3.24 which represents a substantial premium of 83%
over the closing price at that time. Third, the acquisition cost for SOSC implies
9.9x/6.9x SOSC’s estimated earnings for 2014E/2015E, which is not demanding in
our view.
Figure 18: Shareholder structure before reorganization Sources: Company, CGIHK Research
Figure 19: Shareholder structure after reorganization
Sources: Company, CGIHK Research
73.39% 100%
40.25%*
100%
* A Shares
Sinopec Group
Sinopec Corp. SOSC
Sinopec Yizheng
Chemical fiber business
72.01%* 73.39%
100% 100%
Sinopec Group
Sinopec Yizheng Sinopec Corp.
SOSC
* A Shares and not taking into account of the Proposed Subsequent A Share Placement
Chemical fiber business
19
Major Customers
Sinopec has been SOSC’s biggest client, accounting for 65.9%, 68.4%, 66.5% and
58.7% of total revenue for 2011/2012/2013/1H2014 respectively. SOSC also provides
oilfield services to CNPC, CNOOC and Shaanxi Yanchang Oil Corporation in China.
In the overseas market, SOSC provides services to the national oil companies of Saudi
Arabia, Kuwait, Ghana, Algeria, Brazil, Ecuador and Mexico, as well as international oil
companies and local governments, and also the overseas businesses of Chinese oil com-
panies.
Figure 20: Breakdown of SOSC revenue by customer (%)
Sources: Company, CGIHK Research
Figure 21: Breakdown of SOSC revenue by customer
Sources: Company, CGIHK Research
1,972 1,984 2,0381,116
4,7687,128 6,088
2,683
18,576 18,52221,938
10,327
48,938
59,703 59,664
20,059
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2011 2012 2013 1H14
Arabian American Oil Co. CNPC Others Sinopec
2.7% 2.3% 2.3% 3.3%6.4% 8.2% 6.8% 7.8%
25.0%21.2%
24.4%30.2%
65.9%68.4% 66.5%
58.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2011 2012 2013 1H14
Arabian American Oil Co. CNPC Others Sinopec
20
SOSC purchases equipment, raw materials and assembling tools used in its services
from a group of suppliers.
Sinopec is the biggest supplier (figure 22). For 1H14, except for the two biggest suppliers,
the remaining suppliers each accounted for less than 1% of the total purchases.
Major Suppliers
Others (<1% each), 53.3%
Sinopec, 44.6%
Al-Kifah Trading Company, 2.1%
Figure 22: Breakdown of purchase from major suppliers of 1H14
Sources: Company, CGIHK Research
Figure 23: Breakdown of purchase from major suppliers
Sources: Company, CGIHK Research
14,181
20,154 18,135
5,560
29,544
39,830 42,570
12,466
48.0%
50.6%
42.6%
44.6%
38%
40%
42%
44%
46%
48%
50%
52%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2011 2012 2013 1H14
Purchase from Sinopec (RMBm)
Total Purchase (RMBm)
% of Sinopec
21
Figure 24: SOSC revenue breakdown by segment
Sources: Company, CGIHK Research
Figure 25: SOSC revenue breakdown by region
Sources: Company, CGIHK Research
2.6% 2.6% 2.9% 2.5%
5.5% 5.8% 5.7% 4.5%8.2% 8.5% 7.4% 8.0%
8.9% 9.5%10.5%
9.3%
24.0%25.9% 27.3%
23.6%
50.7%47.8%
46.2%
52.1%
0%
10%
20%
30%
40%
50%
60%
2011 2012 2013 1H14
Others Logging and mud logging
Geophysics Revenue (RMBm) Special down-hole operations
Engineering construction Drilling engineering
2.8%3.9% 3.8%
6.7%4.2%
3.2% 5.5%5.7%
5.5%3.6% 4.3%
7.1%
84.8% 85.0%
79.1%75.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2011 2012 2013 1H14
America Africa Middle East China
22
Figure 26: SOSC gross profit breakdown
Sources: Company, CGIHK Research
2.4% 2.2%5.9%
0.8%
10.6%10.2% 10.9%
8.7%8.4%6.2% 6.5%
8.6%6.3%
5.3%11.4%
9.9%
23.5% 23.0% 22.0%
12.8%
48.8%
53.0%
43.4%
59.2%
0%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 1H14
Others Logging and mud logging
Geophysics Revenue (RMBm) Special down-hole operations
Engineering construction Drilling engineering
23
Geophysics
Figure 27: Geophysics segment equipment owned by SOSC
Sources: Company, CGIHK Research
Geophysics is the process of utilizing geologic and physical principles to detect and
analyze the underground characteristics in probable areas, aiming at identifying proba-
ble oil and gas reservoirs. This is the initial step of oil and gas exploration. Geophysics
can effectively reduce exploration risks and improve recovery efficiency, and play an
important technical support role in exploration breakthroughs and discovery as well as
the increase in oil and gas reserves and production stabilization.
SOSC provides onshore and offshore geophysical prospecting and development tech-
nical services. Its business mainly includes research on geophysical prospecting theo-
ry and methodology, technology design, data acquisition, processing and comprehen-
sive interpretation, basin evaluation and exploration deployment, software R&D and
sales, engineering seismology, surveying and mapping, and R&D/ manufacturing of
seismic exploration equipment.
SOSC has 78 acquisition teams, including 68 onshore seismic teams, three offshore
seismic teams, three VSP teams, one cross-hole seismic team and three comprehen-
sive geophysical and geochemical teams.
In 1H14, SOSC’s equipment in geophysical segment is listed in figure 27 below. Also,
SOSC has 3 12-streamer seismic vessels which are able to collect 22,000 km 2D and
6,000 km2 3D offshore data, and process 100,000km 2D and 30,000km2 3D offshore
data respectively. As of June 2014, SOSC has completed a total of 495 international
and domestic geophysical projects and it was in 1992 when SOSC entered into the
international market for the first time.
Equipment Nos. Units
Seismic data colleting tools 428 XL and 408 UL 105 sets
Vibroseis NOMAD65 134 sets
Seismic receiving channels 450,000 channels
Full digital seismic 3C geophones 25,500 sets
Single-component digital geophones 10,000 sets
24
Figure 28: Geophysics segment revenue, gross profit and margin
Sources: Company, CGIHK Research
Exploration methods applied by SOSC include seismic exploration, gravity exploration,
magnetic exploration and electronic exploration, of which seismic exploration is the most
precise and most frequently used. It consists of three stages: data acquisition, processing
and interpretation.
Seismic data acquisition: Seismic waves are manually generated, and the propaga-
tion process of seismic waves is recorded by professional equipment.
Seismic data processing: Cluster computers and professional software are used to
image the acquired data so as to obtain accurate underground structure form.
Seismic data interpretation: Computers and professional software are used to ana-
lyze imaging results and determine favorable oil and gas accumulation parts.
543 502 553 338
6,101
7,412
6,642
2,728
8.9%
6.8%
8.3%
12.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2011 2012 2013 1H14
Geophysical gross profit (RMBm)
Geophysics revenue (RMBm)
Gross profit margin (RHS)
25
Drilling
SOSC is one of China’s domestic integrated drilling contractors. It has drilling capacity of
1.65m meters/year and could drill up to 9,000m depth. SOSC can provide a wide range of
services in drilling segment covering three major categories, namely engineering contract-
ing, technical services and product manufacturing.
Figure 30: Drilling segment operation details
Sources: Company, CGIHK Research
• Drilling contracting
• Pre-drilling engineering
• Post-drilling management
• Directional w ell services
• Drilling and completion f luid services
• Cementing services
• Underbalanced drilling services
• Well control services
• Pipe services
• Coring services
• Casing running services
• TDS services
• Drilling design and professional training
• Drilling instruments
• Dow nhole measurements
• Mud logging units
• Drill bits
• Drilling and completion tools and control instruments
• Bits and solid control equipment
Engineering contracting
Technical services
Product manufacturing
Drilling
Figure 29: Drilling segment business operation details
Sources: Company, CGIHK Research
2011 2012 2013 1H14
Nos. of drilled w ells 4,911 5,004 5,340 2,228
Drilling footages (km) 12,227 13,212 13,398 5,652
Average w ell depth (m) 2,535 2,644 2,666 2,517
Where offshore
Nos. of drilled wells 109 100 85 23
Drilling footages (km) 243 232 205 58
Average well depth (m) 2,177 2,297 2,312 2,932
26
Figure 31: Drilling segment revenue, gross profit and margin
Sources: Company, CGIHK Research
Featured technologies of SOSC are summarized below:
Deep and ultra-deep well drilling and completion technologies:
SOSC could handle complex underground conditions of high sulfur content, high tem-
perature and high pressure etc. It could drill wells up to 9,000m deep.
Horizontal well drilling and completion technologies
Underbalanced/managed pressure drilling technologies: Though not as common
as overbalanced drilling, underbalanced drilling is achieved when the pressure exerted
on the well is less than or equal to that of the reservoir. Performed with a light-weight
drilling mud that applies less pressure than formation pressure, underbalanced drilling
prevents formation damage that can occur during conventional or overbalanced drilling
processes. The negative differential pressure obtained during underbalanced drilling
between the reservoir and the wellbore encourages production of formation fluids and
gases. In contrast to conventional drilling, flow from the reservoir is driven into the well-
bore during underbalanced drilling, rather than away from it.
Drilling fluid technologies for complex formations: SOSC has water-base drilling
fluids and full set of oil-base drilling fluids which enable SOSC to deal with complex
underground geotechnical conditions such as high temperature, high pressure, high
water sensitivity and collapse-prone formation.
Cementing technologies for complex formations: SOSC has the largest domestic
well cementing equipment R&D base and has R&D capability for the whole well ce-
menting equipment industrial chain. Also, SOSC has a leading position in the domestic
liner hanger market.
Offshore drilling and completion technologies: Rigs’ working depth ranges from 2m
to 610m with drilling capability ranges from 6000m to 9000m.
SOSC formed a JV in 2014 with Weatherford. The JV focuses on the high-end market with
the long-term goal of becoming an integrated oilfield services provider. Through introduction
of high-end equipment and technologies from Weatherford, the JV has projects in South-
west, Northwest and offshore China.
3,157 4,258 3,702 2,337
37,618 41,744 41,457
17,814
8.4%
10.2%8.9%
13.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2011 2012 2013 1H14
Drilling gross profit(RMBm)
Drilling revenue (RMBm)
Gross profit margin (RHS)
27
Logging
Logging has been divided into well logging and mud logging.
Well logging, also known as borehole logging, is the practice of making a detailed record (a
well log) of the geologic formations penetrated by a borehole after the well been drilled.
Mud logging is the creation of a detailed record (well log) of a borehole by examining the
cuttings of rock brought to the surface by the circulating drilling medium (most commonly
mud). SOSC has advantages on complex reservoirs logging technology and R&D on log-
ging productions. Up to the three consecutive years ended in 2013, SOSC has completed
mud logging for 17,029 wells which mainly included comprehensive logging, geologic log-
ging and gas logging; It also completed 111,000 loggings which mainly are open-hole log-
ging, production logging and perforation.
Figure 32: Logging segment business details
Sources: Company, CGIHK Research
•Open hole logging
•Production logging
•Perforation
•Wireline formation test
•Logging data processing, interpretation & application
• Well position surveying and mapping
• Drilling geology design
• Mud logging data acquisition
• Mud logging information transmission
• Mud logging data processing, interpretation
• Mud logging equipment R&D and manufacturing
Logging
Logging
Mud logging
Figure 33: Logging segment revenue & gross profit
Sources: Company, CGIHK Research
685 823 929
342
4,096
5,060 5,120
1,546
16.7% 16.3%18.1%
22.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
2011 2012 2013 1H14
Logging gross profit (RMBm)
Logging revenue (RMBm)
Gross profit margin (RHS)
28
Logging is applied over the whole life span of oilfields. Logging services of SOSC have in-
cluded the following:
Open-hole logging: Logging the open hole that has not started oil and gas production
before the running casing. SOSC has an annual service capacity for open hole logging
of 20,000 well-times;
Production logging: Production logging is the measurement of fluid parameters and
flow contributions on a zone-by-zone basis to yield information about the type and
movement of fluids within and near the wellbore. SOSC has production logging capacity
of over 5,000 well-times;
Perforation: A perforation in the context of oil wells refers to a hole punched in the
casing or liner of an oil well to connect it to the reservoir. SOSC has perforation capacity
of 13,000 well-times;
Wireline formation test: Wireline formation test uses wireline tools along the well to
measure the underground fluid and pressure characteristics; and
Processing, interpretation and application of the logging data: Besides processing
and explaining the logging data, SOSC could further put the logging information into
practical use according to certain specific needs of clients. It has a capacity of 20,000
well-times for logging data processing, interpretation & application.
SOSC’s mud logging segment has included the following detailed services items:
Well position surveying and mapping: It refers to precisely locate the well on spot
based on design coordinate. SOSC has well location survey capacity of over 2,000
wells / year;
Drilling geology design: It refers to geotechnical predictions on fluids, pressure etc. for
candidate wells. SOSC has geotechnical design capacity of 2,000 wells / year;
Mud logging data acquisition: It consists of mainly comprehensive logging, geologic
logging, gas logging. SOSC has mud logging data collecting capability of over 6,000
wells / year;
Mud logging information transmission: This refers to transmission of on-site infor-
mation to support base, which in return would provide solid technical support for on-site
operations. SOSC has mud logging data transition capacity of over 2,000 wells /year;
Mud logging data processing and interpretation: SOSC has capacity of 6,000 wells /
year for mud logging processing, interpretation and application; and
Mud logging equipment R&D and manufacturing: SOSC has an annual production
capacity for the R&D and manufacture of 100 comprehensive logging units and devel-
opment well logging units.
29
Special Downhole Operation
Special downhole operations are an integral part of the oil and gas well bore engineering
business. SOSC’s special downhole operation segment has covered a wide range of ser-
vices such as conventional and unconventional oil and gas and offshore oil and gas reser-
voir stimulation, production testing, completion, oil, gas and water well work-over and side-
tracking. As of 2013 end, SOSC has a total of 354 special downhole operation teams.
SOSC has formed a JV named “Huamei Futai” with FTS International Services LLC (FTS),
a leading provider of well completion services, including pressure pumping, wireline and
pressure control, and water management. SOSC owns 55% and FTS owns 45% of the JV.
The JV mainly focuses business on Sichuan and Chongqing where unconventional reser-
voirs are common.
Figure 34: Special downhole operation segment revenue, gross profit and
Sources: Company, CGIHK Research
411 426 971
392
6,644
8,256
9,423
3,175 6.2%5.2%
10.3%
12.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2011 2012 2013 1H14
Special downhole gross profit (RMBm)
Special downhole revenue (RMBm)
Gross profit margin (RHS)
30
Engineering Construction
SOSC has over 50 years’ experience in engineering construction, providing onshore and
offshore construction services.
Engineering Design and Consultancy Services: SOSC’s consulting services include
feasibility studies, preliminary designs and detailed designs for engineering projects.
SOSC has five design firms, with more than 3,000 professional design and consulting
staff with professional qualifications across 20 disciplines, including process, piping,
equipment, storage and transportation, sewage, automation, electrical, structural, ar-
chitectural, general plan, environmental protection, fire and information technology.
SOSC has developed six core technologies for crude oil treatment and storage, gas
gathering and treatment, waste water treatment and re-injection, marine engineering,
long-distance pipeline projects and energy saving and green corrosion resistance with
18 patents.
EPC contracting: SOSC is capable of offering engineering, procurement and con-
struction (EPC) contracting services and other types of general contracting services.
Construction Business: SOSC has eight specialized construction subsidiaries and
has registered national qualifications in fields of oil & chemical, offshore oil engineer-
ing, building, highways, hydraulics, municipals etc. As of June 30, 2014 SOSC has
technical posts and management posts totaling 5,670, and operational posts totaling
6,460.
Figure 35: Engineering construction segment revenue, gross profit and margin
Sources: Company, CGIHK Research
1,522 1,845 1,872 504
17,828
22,577
24,484
8,054
8.5%8.2%
7.6%
6.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
2011 2012 2013 1H14
Engineering construction gross profit (RMBm)
Engineering construction revenue (RMBm)
Gross profit margin (RHS)
31
Selected Management Profile
JIAO Fangzheng, 51, candidate for Chairman. JIAO is a professor-level senior engineer with a Ph.D. degree. In Jan-
uary 1999 JIAO was appointed Chief Geologist of Zhongyuan Petroleum Exploration Administration of China Petro-
chemical Corporation; in February 2000, JIAO was appointed Vice President and Chief Geologist of Sinopec Zhong-
yuan Oilfield Company; in July 2000, JIAO was appointed Deputy Director General of Sinopec Petroleum Exploration
& Development Research Institute; in March 2001, JIAO was appointed Deputy Director General of Sinopec Explora-
tion & Production Department; in June 2004, JIAO was appointed Director of Northwest Petroleum Administration of
China Petrochemical Corporation and as President of Sinopec Northwest Oilfield Company; in October 2006, JIAO
was appointed Vice President of Sinopec Corp; in July 2010, JIAO was appointed Director General of Sinopec Explo-
ration & Production Department; and in July 2014, JIAO was appointed Deputy General Manager of China Petro-
chemical Corporation. JIAO was appointed Director of SOSC in August 2012.
YUAN Zhengwen, 58, candidate for Vice Chairman. YUAN is a professor-level senior engineer with a Ph.D. degree.
In January 1999, YUAN was appointed Deputy Director of Yunnan-Guizhou-Guangxi Petroleum Prospecting Admin-
istration of China Petrochemical Corporation; in February 2000, YUAN was appointed Director of Yunnan-Guizhou-
Guangxi Petroleum Exploration Administration of China Petrochemical Corporation and Manager of Sinopec Yunnan-
Guizhou-Guangxi Oilfield Company; in November 2001, YUAN was appointed Director of Henan Petroleum Prospect-
ing Administration of China Petrochemical Corporation and representative of Sinopec Henan Oilfield Company; in
November 2005, YUAN was appointed director of Oilfield Operations Department of China Petrochemical Corpora-
tion; in March 2010, YUAN was appointed director of Petroleum Engineering Management Department of China Pet-
rochemical Corporation. Since June 2012, YUAN has served as Vice Chairman of SOSC.
ZHOU Shiliang, 56, candidate for Director and Deputy General Manager. ZHOU is a professor-level senior engineer
with an M.A. degree. In February 2000, ZHOU was appointed Deputy Director of Yunnan-Guizhou-Guangxi Petrole-
um Exploration Administration of China Petrochemical Corporation; in September 2000, ZHOU was appointed Man-
ager of Sinopec Yunnan-Guizhou-Guangxi Oilfield Company; in April 2002, ZHOU was appointed Party Secretary
and Deputy Manager of Sinopec South Prospecting and Exploiting Company; in April 2006, ZHOU was appointed
Party Secretary and Deputy Director of Henan Petroleum Exploration Administration of China Petrochemical Corpora-
tion; in November 2007, ZHOU was appointed HR Department Head of China Petrochemical Corporation; and in May
2009, ZHOU was elected Employee Representative Supervisor of Sinopec Corp. Since June 2012, ZHOU has acted
as Chairman of the Supervisory Board, Secretary of CPC Committee and Discipline Inspection Committee, and
Chairman of the Labor Union of SOSC.
LI Lianwu, 57, candidate for Director. LI is a professor-level senior engineer with an M.A. degree. In January 2000, LI
was appointed Deputy Director of Henan Petroleum Exploration Administration of China Petrochemical Corporation;
in April 2006, LI was appointed Director of Henan Petroleum Exploration Administration of China Petrochemical Cor-
poration; in August 2000, LI was appointed Manager of Sinopec Henan Oilfield Company; and in December 2008, LI
was appointed General Manger of Sinopec Henan Oilfield Company. Since September 2014, LI served as Party Sec-
retary of Sinopec Oil and Gas Exploration and Development Company and Deputy Director of Oil Field Exploration
and Development Department of Sinopec Corp.
32
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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 :