Jutal Offshore Sees Boom Yrs On Deepwater Drilling

HONG KONG, April 30, 2008 (Dow Jones Newswires)

Jutal Offshore Oil Services Ltd. (3303.HK) expects new order flow to remain strong for the next few years, as more oil firms will start drilling in the deep waters offshore China later this year, a company executive said in a recent interview.

As oil surges to new highs, exploration companies are ramping up production to take advantage of the favorable price environment, thus increasing demand for support services and equipment from companies like Jutal. The Shenzhen-based company is a subcontractor of oil field equipment and support services and counts China National Offshore Oil Corp., also known as Cnooc Group, as one of its major customers.

"Orders for new semi-submersibles (a type of deepwater rig) are increasing globally, not only in China. I think this trend will remain for at least the next few years and it will boost our earnings in 2008 and beyond," Cao Yunsheng, an executive director of Jutal, told Dow Jones Newswires.

Jutal produces parts and equipment used in rigs. Its major products are skid equipment that separates well fluids into oil, gas and water. It also makes living quarters on drilling rigs and platform jackets.

The company also provides support services to oil firms, such as laying onshore pipelines for a liquefied natural gas receiving terminal in Fujian province owned by Cnooc Group.

The company's net profit rose 60% last year to CNY68 million, while revenue climbed 42% to CNY422.9 million.

Cao declined to say how many new orders it secured last year. He also declined to give projections for this year.

Currently, all the deepwater explorations in offshore China are put out to tender by Cnooc Group, which has signed production sharing contracts with four western oil firms - Devon Energy Corp. (DVN) and Anadarko Petroleum Corp. (APC) from the U.S., Husky Energy Inc. (HSE.T) from Canada, and BG Group PLC (BRG) from the U.K.

Devon and Anadarko flagged their intention to drill deepwater wells offshore China this year after Husky made a major discovery of up to 6 trillion cubic feet of natural gas in the South China Sea in 2006.

Deepwater exploration is the next high-growth spot for hydrocarbon reserves addition in China, as the country has been pumping in more shallow waters for years and some of those wells have shown signs of drying up.

China Oilfield Services Ltd., the drilling arm of Cnooc Group, said last month it signed a contract with Norwegian Rolls-Royce Marine AS to design two deepwater vessels that will be used in South China Sea exploration. It said it will also find a domestic shipbuilder to produce them and deliveries are expected by 2010-2011.

"Even though we are a smaller player compared to China Oilfield Services, there is still room for us to grow because demand for oil processing equipment and services is really strong," Cao said.

He said the company plans to invest CNY30 million to expand the capacity of one of its plants in Zhuhai city, southern China, which produces skid equipment. The expansion is scheduled to be completed in May 2009, he said.

The first phase of the Zhuhai plant started operations in October last year. Jutal invested some CNY40 million in it.

Jutal also holds a 30% stake in Penglai Jutal Offshore Engineering Heavy Industries Co., which produces offshore oil platforms and is based in Shandong province, northeastern China.

Penglai Jutal derived about half of its total revenue of CNY280 million from Cnooc Group last year, Cao added.

HONG KONG, April 30, 2008 (Dow Jones Newswires)