Mr. Yuan Guangyu, CEO and President of COSL, stated, "The exploration and development activities offshore China remain active. The demand for drilling activities and well services increased substantially in the first half of 2004. Apart from the strong demand for our oilfield services, the increased rate in directional drilling, logging and cementing assignments also contributed to the turnover growth. Together with the introduction of new technologies and tools, which enhanced our operational efficiency and utilization rate, we are delighted to have achieved the impressive interim results."
Turnover from drilling services increased by 26.3% to RMB 798.4 million (2003: RMB 632.1 million) in the first half of 2004. During the period under review, market demand for drilling activities increased substantially. While the number of exploration wells fell by 17.5%, to 33 wells (2003: 40 wells) in the first half of 2004, the number of development wells drilled increased by 63.2%, to 93 wells (2003: 57 wells) during the same period. The drilling rigs operated for a total of 2,300 days, an increase of 543 days compared to the same period last year. Average utilization rate remained at approximately 100% in first half of 2004.
The Company's well services achieved strong growth in the first half of 2004. Turnover from well services amounted to RMB 394.3 million, representing an increase of RMB 125.9 million, or 46.9%, compared to the turnover of RMB 268.4 million in the same period of 2003. This remarkable growth was due to the dynamic exploration and development activities in offshore China, as well as the introduction of latest technology and tools in the operation assignments. However, the growth in turnover of well services was slower than the increase in work volume, as most of the well services concentrated in the shallower part of Bohai Bay during the period under review.
Turnover from marine support and transportation services surged by 20.6% to RMB 365.4 million in the first half of 2004 (2003: RMB 302.9 million). During the period under review, a total of four new vessels were added to COSL's fleet to satisfy the expanding customer demand for marine support vessels. Average utilization rate for the Company's marine support vessels averaged 98.9%, which was slightly higher than the 96.0% in the same period of 2003.
Turnover from geophysical services recorded a moderate increase of RMB 238.6 million in the first half of 2004 (2003: RMB 232.7 million). This 2.5% increase was mainly due to the growth in 3D seismic data collection activities.
COSL's application to reduce its enterprise income tax rate from 33% to 15% for the fiscal year 2003 as a high and new technology company was approved by the relevant tax authorities in China, which resulted in a tax refund of RMB 129 million.
Owing to the increase in depreciation costs, labor costs, repair and maintenance costs and other operational costs, COSL's total operating expenses in the first half of 2004 amounted to RMB 1,389.5 million, representing an increase of 30.9% over the same period last year. Nevertheless, in the first half of 2004, the Company enjoyed a 12.5% increase in operating profit.
Mr. Yuan concluded, "The momentum of exploration and development activities in offshore China is expected to remain robust. We also expect the utilization rates of our fleet will remain at a high level. We will continue to enhance our operational efficiency and overall competitiveness through the introduction of new technologies and tools and reducing our operating expense. We remain optimistic about our operations offshore China and our prospects overseas."
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