Pump it up

As world business slows due to the financial crisis, China Offshore Service Ltd (COSL) has announced it will quicken its integration with Awilco, its newly acquired Norwegian rig and platform operator.

"We found there is no need to wait (to start integration) for two years, as we once thought," Yuan Guangyu, COSL president and CEO, tells China Business Weekly.

The price tag is almost as large as the annual trade volume between China and Norway. But Yuan hastens to say that though it was once marked as $2.5 billion, it actually cost COSL $2.3 billion, $170 million less than expected thanks to the rise of the US dollar.

Despite opinions occasionally surfacing in the business press that the company might have still paid too high a price, Yuan insisted that COSL has earned not only the latter's assets and talents, but also precious time for getting ready for the next cycle of offshore oil demand.

No opportunist

"We're not just some opportunists," Yuan stresses. "We have our growth strategy, which will lead us to become one of the world's leading offshore oil service providers in 2020. Nothing can lead us away from that easily."

With the just-closed Norwegian deal, COSL officials say the company would yield as much growth or even more as it did in the past several years after its listing in 2002.

With the capacity from the former Awilco, relatively high growth can continue into 2009 and 2010 in a steady process, they say, even predicting that the revenue growth figure could be above 30 percent, higher than its international peers.

In compound terms, COSL's revenue growth was 27 percent each year between 2002 and 2007.

Also in 2009, revenue contributions from outside China, or the degree of the company's globalization will exceed 30 percent of its total revenue. That would make it possible for around 50 percent overseas revenue in 2015, as required by its growth strategy.

"We are already seeing the revenue-boosting effect," Yuan adds, "starting from the last couple of months of this year" - when three rigs formerly owned by Awilco will be relocated to offshore China.

No matter how the financial crisis will affect the global economy, the demand for offshore service - drilling and all related value-added services - will continue in offshore China, he says. The Awilco deal can "only partly quench the thirst", he adds.

He says: "If you know the oil industry, you know that as service providers, we usually operate on long-term contracts. They cannot be canceled or revised when oil price fluctuates for short times. That really brings us a higher degree of resilience.

However, largely as a result of the global financial crisis and the policy snarl at home, like many companies, COSL's share price is low in both the overseas H-share market and domestic A-share market.

Analysts who declined to be named say that without additional capital, there may be severe limitations on the company's ambitions for more overseas acquisitions after its Norwegian deal; though somewhere down the road, the likelihood will be high for Chinese companies, if their financial situations make it possible, to make some high quality acquisitions abroad.

Integration

What allows COSL to expect a relatively smooth transition is the "support on the policy level" from the former Awilco executive team.

The executives, from both Norway and the United States, were recently invited to tour COSL headquarters in Beijing, and held talks with the Chinese executives. With their support, COSL is now expecting a relatively flat and efficient future management structure.

According to the integration plan, Awilco's Oslo headquarters will be dissolved, because its oil operations, which COSL will inherit, are entirely based in Stavanger, the Norwegian oil service center for the North Sea. So all COSL's Norwegian business will be based in Stavanger.

While the task to oversee Premium Drilling (PD), a Houston-based drilling operator jointly owned by Awilco and India's Aban Offshore Ltd, will be shifted from Oslo to the COSL head office in Beijing. COSL will inherit Awilco's equity rights in PD.

But the integration plan is not just about regrouping operations and reshuffling people. One of the problems that the company has also inherited is the delay in the delivery of the semi-submersible rigs, still under construction in Yantai in east China, by a Singaporean ship builder.

"We fully understand what we must do," Yuan says. "The problem is no longer just between Oslo and Yantai. Beijing has stepped in." The geographic distance between Beijing and Yantai is much shorter, and some COSL delegates have already held talks with the ship builder.

The CEO says: "Very soon, we will draw up a comprehensive plan to give our inputs, to guarantee no more delays, if not to shorten the delay."

(China Daily 11/24/2008 page7)