Termbray Petro King Oilfield Services [2178.HK]€¦ · 1 Termbray Petro-King Oilfield Services...

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Termbray Petro-King Oilfield Services [2178.HK]

We initiate coverage on Petro-king with a BUY rating and target price (TP) of HK$6.50 (based on 26x 2013E PER; on par with Anton Oilfield [3337.HK]). We fore-cast Petro-king to deliver impressive core earnings compound annual growth rate (CAGR) of 56% between 2012 and 2014E. Led by founder and Chairman WANG Jinlong, Petro-king has successfully built up a top-notch cadre of management and engineers with the capability of offering high-end oilfield services technologies (like turbine drilling and multistage fracturing), which is rarely found in China. This, cou-pled with rich experience in China and in overseas markets, a 10-year business relationship with Sinopec, and the right timing to shift its focus to the domestic mar-ket, leads us to believe that Petro-king is well prepared to capture unconventional gas opportunities.

We believe Petro-king is entering a secular growth stage with six drivers: (1) Explosive demand growth for multistage fracturing driven by fast growing tight gas exploration in the Ordos Basin; (2) Huge potential in Venezuela’s Ori-noco oil belt; (3) Strategic alliance with Huadian to capture shale gas develop-ment; (4) Rising competitive power by increasing in-house tool manufacturing capability; (5) Secular growth in Chinese national oil companies (NOCs) capex with a rising outsourcing trend; (6) Potential overseas opportunities on the back of Sinopec’s aggressive international expansion.

We forecast core an earnings CAGR of 56% (2012 and 2014E). We expect Petro-king’s core net profit in 2013E to surge 81% year-on-year (YoY) to HK$261m (adjusted for 2012 non-cash items) and to grow by a further 34% to HK$350m in 2014E, driven by strong demand for high-end oil services, in par-ticular multi-stage fracturing, as well as resilient EBIT margin helped by more in-house tool manufacturing.

Initiate with BUY with TP of HK$6.50. Our TP of HK$6.50 is based on 26x implied 2013E PER, on par with Anton Oilfield [3337.HK]. Key reasons: (1) In terms of revenue (2012), Petro-king has 50% exposure to production enhance-ment (mainly multistage fracturing which is crucial to unconventional gas exploi-tation), versus 21% for Anton Oil and <10% for SPT Energy [1251.HK]; (2) Pet-ro-King is strategically located in fast growing Ordos Basin (tight gas).

Risks: (1) Concentrated customer base; (2) Potential change in capex plans of major oil companies; (3) Technology risk; (4) Long receivable days; (5) Low earnings visibility due to project-based business; (6) Potential shortage of sen-ior technical experts; (7) Change in general economic environment; (8) Poten-tial political risk in certain developing countries.

Wayne Fung, CFA —Analyst

(852) 3698-6319

[email protected]

John Mulcahy—Head of Research

(852) 3698-6889

[email protected]

Oilfield Services Sector Right Time, Right Place, Right People- A Fracking Outlook:

Initiate with BUY

BUY

Close: HK$5.34 (May 03, 2013)

Target Price: HK$6.50 (+22%)

Share Price Performance

Market Cap US$714m

Shares Outstanding 1,037.5m

Auditor PWC

Free Float 28%

52W range HK$3.81-5.34

3M average daily T/O US$48.9m

Major Shareholding Termbray Industries

(33%)

King Shine Group

May 06, 2013

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(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

Key Financials (HK$ m) 2011 2012 2013E 2014E

Revenue 559 1,057 1,819 2,341

Change (YoY) 0.2% 89.0% 72.1% 28.6%

EBIT 116 180 347 461

Change (YoY) 8.2% 55.0% 93.0% 32.7%

Core net profit 88 144 261 350

Change (YoY) 3.3% 63.9% 81.4% 34.3%

Core EPS (HK$) - 0.19 0.25 0.34

Change (YoY) - - 30.5% 34.3%

ROE 9% 14% 17% 15%

Net debt/equity Net cash 2.5% Net cash Net cash

PER (core earnings) (x) - 27.7 21.2 15.8

Dividend yield - 0.0% 0.0% 0.6%

PBR (x) - 3.8 2.6 2.3

EV/EBITDA (x) - 26.2 13.3 10.1

Sources: Company, CGIHK Research estimates

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We initiate coverage on Petro-king with a BUY rating and TP of HK$6.50 (based on 26x 2013E PER; on par with Anton Oil. We forecast Petro-king to deliver im-pressive core earnings CAGR of 56% between 2012 and 2014E. Led by founder and Chairman WANG Jinlong, Petro-king has successfully built up a strong team of management and engineers with the capability of offering high-end oil-field service technologies (including turbine drilling and multistage fracturing), which is rarely found in China. This, coupled with the rich experience in China and in overseas markets, a 10-year business relationship with Sinopec, as well as the right timing to shift its focus to the domestic market, prompts our conclu-sion that Petro-king is well prepared to capture unconventional gas opportuni-ties. We see six growth drivers for Petro-king:

1) Petro-king is riding on explosive demand growth for multistage frac-turing driven by fast growing tight gas exploration in the Ordos Basin. Sinopec North China Company, a subsidiary of Sinopec, launched a large-scale development campaign in late 2011 to boost the tight gas output in the Ordos Basin. Driven by this campaign, Sinopec Group finished a total of 484 horizontal wells with multistage fracturing in 2012, up six-fold from 69 wells in 2011. In mid-2012, Sinopec North China Company alone had targeted to put 70-80 horizontal wells with multistage fracturing into operation every month, implying annual commencement of 840-960 wells. This suggests further increases in demand for multistage fracturing which will provide Pet-ro-king with huge opportunities. In 2012, Petro-king completed 147 wells for production enhancement, of which 120 wells are multistage fracturing jobs in Ordos Basin. We expect Petro-king to finish a total of 300 multistage frac-turing wells in China in 2013, more than double the 2012 level.

2) Venezuela’s Orinoco oil belt offers Petro-king huge opportunities in well completion and fracturing. Venezuela surpassed Saudi Arabia in 2010 to become the country with the world’s largest oil reserves after OPEC confirmed the country’s proven oil reserve in the Orinoco belt. With proven oil reserves accounting for 18% of the world’s total (2011) but only 3.3% of the world’s oil output, Venezuela has needed more investment to boost out-put. Petro-king successfully entered the Venezuelan market through con-tracts from PDSVA (the state oil company of Venzuela) in 2012. We under-stand that, aside from the backlog of HK$242m (well completion jobs) for PDSVA, Petro-king has secured 40 fracturing jobs from PDVSA for 2013-2015 with contract value per well at US$3m, several times higher than that in China. The Venezuela market has big potential for Petro-king. We esti-mate Petro-king’s revenue from Venezuela in 2013E to jump 125% YoY to HK$470m, representing ~26% of total revenue.

3) Strategic alliance with Huadian paves the way to capture shale gas potential. Huadian Group won the bid for four blocks in the second round of auction by China’s Ministry of Land and Resources (MLR) of exploration rights to 19 shale gas blocks—the biggest winner in the auction. Petro-king successfully grasped the opportunity by entering into a strategic alliance framework agreement with China Huadian Engineering (subsidiary of China Huadian Group) in January 2013. Petro-king will be the preferred partner to provide relevant oilfield project services for certain blocks. Since Huadian has less experience in unconventional gas development, Petro-king will di-rectly benefit from more exploration work. We have not included any earn-ings contribution from this partnership, so any contract intake will provide upside to our estimates.

Investment Case

Initiate with BUY; TP of HK$6.5 implies 22% upside

We forecast Petro-king’s multi-stage fracturing jobs in China to double to 300 in 2013E from 147 in 2012

Aside from well completion jobs, Petro-king has principally secured 40 jobs of multistage fracturing from PDVSA for 2013E-2015E with attractive contract price

Potentially more cooperation details to be announced in 2H13E could provide earnings upside for 2014E

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4) Rising competitive power on increasing in-house tool manufacturing capability. Petro-king is adopting a light asset model. Unlike Anton Oil, which is investing extensively in heavy equipment like coiled tubing and pressure pumping sets, Petro-king has focused on tool manufacturing (including packers, safety valves and well control panels) to satisfy future demand. We estimate Petro-king’s packer (for well completion) self suffi-ciency ratio to increase from <10% (10 sets) in 2012 to 60% (180 sets) in 2013E. We understand that Petro-king has already produced 40 sets of packers year-to-date (YTD), representing ~22% of our full-year forecast. Petro-king is also constructing a centralized production plant and a research and development (R&D) centre in Huizhou, Guangdong province in China to increase capacity of packers (for production enhancement) and safety valves, as well as to develop ancillary products like drilling fluid and stimula-tion chemicals. With rising in-house capabilities, Petro-king can (1) lower production cost, (2) customize tools, and (3) better manage the lead time for delivery, thereby enhancing its competitive power to win contracts.

5) Secular growth in Chinese NOCs capex with rising outsourcing trend. Capex growth for oil companies has been the key driver for oilfield service providers. Oil and gas companies are facing increasing difficulty finding and developing new reservoirs to replace the decline in output from existing oil-fields. This results in a rising trend toward the increased use of outsourced engineering and project management services. Chinese NOCs often en-gage external oilfield service companies to provide consultancy services and to support their internal technical and project management teams to deal with complex drilling or production processes. Petro-king, with out-standing technologies and experience, is set to benefit from this favourable trend.

6) Petro-king to benefit from Sinopec’s aggressive overseas expansion. Sinopec has been aggressively expanding its footprint to overseas oil and gas assets over the past few years. Since 2009, it has spent ~US$30bn on overseas acquisitions. Based on its 10-year business relationship with Si-nopec, Petro-king is in a favourable position to benefit from overseas oppor-tunities provided by Sinopec over the medium term.

Petro-king is on track to in-crease its packer production significantly from 10 sets in 2012 to 180 sets in 2013E (YTD: 40 sets)

A proxy to play the Sinopec’s growth story

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Our TP of HK$6.50 is based on a 26x 2013E PER, in line with Anton Oilfield. While both Anton Oil and SPT are close peers of Petro-king, given that they are Chinese independent high-end integrated oilfield service providers with relatively light asset business models, we see Anton Oil as a better comparable to Petro-king and expect the valuation discount to gradually disappear for a few reasons:

Petro-king and Anton are focussed on the domestic market (revenue from

China in 2012: 67% and 77% respectively), while SPT only generated 43% of its revenue from China while 41% was from Kazakhstan.

For regional breakdown within China, Anton is most diversified across differ-

ent regions, while Petro-king and SPT are more concentrated. Petro-King’s revenue from Northern China (Ordos Basin) accounted for 70% of revenue in China in 2012 while SPT’s revenue from Northwest China (Tarim Basin) accounted for 80% of its China revenue. We believe Petro-king is better in terms of location, as the Ordos Basin is expected to be the fastest growing region (2010-2015E CAGR 25%) according to the National Development and Reform Commission (NDRC) target. The growth is also supported by Sinopec’s tight gas development campaign there.

In terms of business segment, Petro-king and Anton focus more on produc-

tion enhancement. For Petro-king, production enhancement (largely multi-stage fracturing, which is crucial to unconventional gas exploitation) ac-counted for ~50% of total revenue in 2012, much higher than Anton Oil (21%) and SPT (<10%).

Valuation—Petro-king Could Trade on Par with Anton Oil

Higher exposure in China

Well located in fast growing Or-dos Basin

Higher revenue from multi-stage fracturing

Figure 1: Valuation Comps

Note: Share prices as of May 3, 2013

Sources: Bloomberg, CGIHK Research

Ticker Company Price Market cap PB (x) EV/EBITDA (x)

(local currency) (US$ mil) 2012A 2013E 2014E 2012A 2013E 2014E 2012A 2013E 2014E

Chinese (HK listed)

2178 HK Equity Petroking 5.34 714 27.7 21.2 15.8 3.8 2.6 2.3 26.4 13.4 10.2

3337 HK Equity Anton Oilfield 6.33 1,754 35.1 26.2 18.8 5.4 4.7 3.6 22.2 16.4 12.2

1251 HK Equity SPT Energy Group 4.10 807 17.7 15.6 12.5 3.1 2.7 2.3 10.9 8.7 6.9

2883 HK Equity China Oilfield Services-H 15.28 10,500 12.0 10.4 9.6 1.7 1.5 1.3 9.9 8.4 7.9

196 HK Equity Honghua Group 3.88 1,618 18.5 11.1 9.8 2.2 1.9 1.6 13.9 7.9 6.7

1623 HK Equity Hilong Group 3.22 677 11.8 9.9 8.4 1.9 1.6 1.4 8.2 8.3 7.2

Average 20.5 15.7 12.5 3.0 2.5 2.1 15.2 10.5 8.5

Chinese (SZ listed)

002353 CH Equity Yantai Jereh 84.00 6,190 52.4 41.2 29.8 11.7 9.4 7.3 55.2 32.0 23.5

002554 CH Equity China Oil HBP Science & Technology 17.05 831 54.6 34.3 26.5 4.5 3.8 3.4 n/a 25.8 19.6

300309 CH Equity Gi Technologies 18.34 639 35.3 26.2 19.6 3.4 3.0 2.7 28.6 17.0 12.2

300157 CH Equity Landocean Energy Services 31.12 922 53.6 36.7 27.8 3.4 3.1 2.8 n/a 33.7 26.0

Average 49.0 34.6 25.9 5.7 4.8 4.0 41.9 27.1 20.3

International

HAL US Equity Halliburton 42.40 39,474 15.3 13.3 10.5 2.5 2.2 1.9 7.4 6.7 5.5

SLB US Equity Schlumberger 74.25 98,712 17.6 15.9 13.1 2.8 2.6 2.2 9.3 8.5 7.4

BHI US Equity Baker Hughes 45.18 19,962 15.3 14.8 11.0 1.2 1.1 1.0 6.6 6.2 5.2

WFT US Equity Weatherford 12.68 9,702 n/a 14.3 9.5 1.1 1.0 0.9 7.4 5.9 5.0

Average 16.1 14.5 11.0 1.9 1.7 1.5 7.7 6.8 5.8

PE (x)

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Peers Comparison Figure 2: Comparison on Operation

Sources: Company, CGIHK Research

Operational Antonoil (3337 HK) SPT Energy (1251 HK) Petroking (2178 HK)

Business classification Drilling (21.6% of 2012 revenue) Drilling (36.2% of 2012 revenue) Drilling (15.4% of 2012 revenue)

Directional drilling: Measurements while drilling

(MWD), Logging while drilling (LWD), rotary

steerable drilling, geological steerable drilling

Directional drilling: MWD, LWD, Rotary

steering, Geosteering

Directional drilling: Turbine drilling

Integrated services Vertical drilling Vertical drilling

Drilling fluid services Cementing Sidetracking

Sidetracking Drilling mud production

Drilling fluids

Fine-Managed Pressure Drilling (FMPD)

Workover

Well completion (22.9% of 2012 revenue) Well completion (29.2% of 2012 revenue) Well completion (25.1% of 2012 revenue)

Well cementing Wellhead Wellhead

Sandscreen Completion string Swell packers

Gravel packing services Sand control Bridge plugs

Acidising and fracturing Well completion string

Christmas tree

Safety valves

Sand control

Down-hole operation (42.7% of 2012 revenue) Reservoir services (34.7% of 2012 revenue) Production enhancement (49.6% of 2012 revenue)

Multistage fracturing Well testing Multistage fracturing

Coiled tubing Artificial lifting Gas lift

Tubular helium testing Dynamic monitoring Chemical injection

Chemical enhanced oil recovery (EOR) Slickline operations Dynamic monitoring

Well flushing services and gas lift services Oilfield chemistry Wellbore simulation

Reservoir research Pressure testing and inspection

Tubular service (12.8% of 2012 revenue) Consultancy services (4.7% of 2012 revenue)

Inspection and evaluation (tubular inspection) Integrated project management (IPM) services

Operation management and repair (repair, welding,

coating)

Supervisory services

Tubular leasing

Manufacturing and sales of tools and equipment

(8.1% of 2012 revenue)

Packer

Safety valve

Wellhead control panel

Business strength Down-hole operation, tubular services Reservoir services Drilling, production enhancement

History Established in 1999 with focus on tubular products Established in 1998 with focus on reservoir

services

Established in 2002 with a fcous on oilfield tools and

equipment

Stepped into high end integrated oilfield services

through M&A starting 2007

Gradually expanded to other high end service

segments

Began to provide high end integrated oilfield services

since 2003

Major partnership Schlumberger (Strategic shareholder) Strategic alliance with Halliburton Solid relationship with major suppliers

Schlumberger purchased 20.1% stake in Antonoil

in July 2012

SPT purchases products from Halliburton

exclusively (for Tarim Oilfield and Jidong

Oilfield)

Preferred partners: Baker Hughes, Halliburton, Packers

Plus, FMC, NOV, Schlumberger

Halliburton supplies products to SPT exclusively

(for Tarim Oilfield and Jidong Oilfield)

Largest customer CNPC CNPC Sinopec

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Figure 3: Comparison on Financials

Note: RMB for Anton Oil and SPT; HK$ for Petro-king.

Core operating profit and core net profit exclude exceptional items.


Figure 4: Revenue by Region Antonoil SPT Petroking


North China26%

Northwest China28%

Northeast China13%

Southwest China10%

Others in China0%

The Middle East17%

Central Asia4%

Africa1%

America1%

Kazakhstan41%

China43%

Canada7%

Singapore7%

Others2%

Northern China47%

Southwest China

9%

Other regions in China12%

Iran4%

Syria0%

Russia5%

Australia0%

Algeria0%

Venezuela 19%

Turkmenistan2%

Others2%

Financials (2012) Antonoil (3337 HK) SPT Energy (1251 HK) Petroking (2178 HK)

Revenue (m) 2,005 1,822 1,057

Change YoY 59.2% 37.9% 89.0%

Core operating profit (m) 398 362 197

Change YoY 127.6% 31.4% 69.8%

Core net profit (m) 303 248 144

Change YoY 176.9% 36.2% 63.9%

Fixed assets: PP&E (m) 955 277 157

Equity (m) 1,972 1,582 1,053

Equity ex-intangibles (m) 1,601 1,572 481

Number of employee 1,613 3,324 519

Core operating margin 19.9% 19.9% 18.6%

Change YoY (ppt) 6 (1) (2)

Core net margin 15.1% 13.6% 13.6%

Change YoY (ppt) 6 (0) (2)

Return on average equity 16.6% 20.2% 14.1%

Change YoY (ppt) 10 (4) 5

Return on average equity (tangibles) 20.9% 20.3% 30.7%

Change YoY (ppt) 12 (4) 10

Return on average fixed assets (tangibles) 40.5% 100.7% 161.8%

Change YoY (ppt) 18 12 (401)

Revenue per employee (000) 1,243 548 2,037

Net debt to equity Net cash Net cash 2.5%

Inventory days 160 222 92

Change YoY (days) (11) (7) (16)

Receivable days 143 162 173

Change YoY (days) (48) 21 (90)

Payable days 199 208 111

Change YoY (days) 66 (28) (56)

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The Chinese government has set clear targets in order to boost the usage of

natural gas in China, as a move to lower carbon emissions. According to the NDRC, natural gas is expected to account for 7%-8% of the primary energy consumption in China by 2015, up from the current 4.6%. The volume of natu-ral gas consumption in China reached 120bn m3 in 2011. According to the 12th Five-year Plan, China targets to raise the annual consumption to 230bn m3 by 2015, representing a CAGR of 17.5%.

To satisfy the significant increase in gas consumption, the National Energy

Administration (NEA) has set a total gas production target of 176-179bn m3 by 2015, representing a CAGR of 14.5%-15% between 2011 and 2015E (Gas import target: ~94bn m3).

The 12th FYP highlights the enhancement of the four major natural gas produc-

tion bases development (figure 6). According to the plan, Ordos Basin’s supply is set to grow at a CAGR of 24.8% between 2010 and 2015E and will become the second largest natural gas supply region (28% of domestic conventional gas output), following Sichuan Basin.

Industry Growth Driver

Aggressive natural gas target (by 2015) suggests more spend-ing on exploration

Ordos Basin, where Petro-king’s focus on, will be the fastest growing region over the coming two years

Figure 5: China Natural Gas Annual Consumption

Source: NBS, NEA, CGIHK Research

Natural gas supply 2010 2015E Incremental supply CAGR (2010-2015E)

Sichuan Basin 21.5 41.0 19.5 13.8%

Ordos Basin 12.9 39.0 26.1 24.8%

Tarim Basin 17.3 32.0 14.7 13.1%

South China Sea 5.0 15.0 10.0 24.6%

Figure 6: China Major Gas Field Supply (cubic metre bil) Source: NDRC, CGIHK Research

14.0%

11.9%

6.4%

16.2%17.0%

17.9%

20.1%

25.6%

15.3%

10.1%

20.2%

12.0%

0%

5%

10%

15%

20%

25%

30%

0

50,000

100,000

150,000

200,000

250,000 2

000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2015E

China Natural Gas Consumption (mil cubic meter) Change (YoY)

17.5% CAGR

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Figure 7: China Natural Gas Supply by 2015

Source: NEA, NDRC, CGIHK Research

Annual target by 2015 (cubic metre bn)

Domestic production

Natural gas

Sichuan Basin 41.0

Ordos Basin 39.0

Tarim Basin 32.0

South China Sea 15.0

Others 11.5

Natural gas total 138.5

Unconventional gas

Coal-to-Gas 15-18

Coalbed methane (CBM) 16.0

Shale gas 6.5

Unconventional gas total 37.5-40.5

Total domestic production 176-179

Import 93.5

Total supply 269.5-272.5

2010 Conventional CBM Shale

(cubic meter trillion)

Total resources 52.0 36.8 134.4

Technically recoverable resources 32.0 10.8 25.0

Proven reserves 9.1 0.3 n/a

Recoverable reserves 3.8 n/a n/a

Figure 8: Natural Gas Resources in China

Sources: NEA, MLR, CGIHK Research

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Unconventional gas generally covers three main types of natural gas resources, namely (1) shale gas, (2) tight gas and (3) coalbed methane (CBM). Conventional and unconventional gases differ not by their chemical composition (all are natural gas) but rather by the geological characteristics of their reservoir rock. A common feature of shale gas and tight gas is that both are trapped in very low-permeability rock—ultra-compact structures that prevent or sharply limit the migration of the gas.

Tight gas is trapped in ultra-compact reservoirs characterized by very low po-

rosity and permeability.

Shale gas is extracted from a geological layer known as the “source rock” (the

sediments and organic material that accumulate are called source rock) rather than from a conventional petroleum reservoir structure.

Coalbed methane (also known as coal seam gas) is trapped in coal deposits.

Most of the gas is adsorbed on the surface of the coal, which is an excellent “storage vessel”.

Unconventional gas resources like shale and tight gas are difficult to recover and therefore specialized drilling and production techniques are required.

Horizontal wells — to optimize gas recovery.

Hydraulic fracturing— to create permeability by injecting highly pressurized

water into the rock creates a network of lateral cracks that allow the gas to mi-grate to the wells.

Unconventional Gas—Source of Re-rating

Figure 9

Sources: EIA, CGIHK Research

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Figure 10

Source: TOTAL, CGIHK Research

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Unconventional gas output in China reached 44.5bn m3, representing ~42% of

total gas output in 2012. Compared with other unconventional gas develop-ment, tight gas exploitation and production in China have been more mature and has entered the commercial production stage.

In 2012, tight gas output in China increased by 25% YoY to 32bn m3, ac-counting for 30% of total natural gas production in China (up from 25% in

2011), the largest share of the unconventional gas total (figure 11).

PetroChina has already stated clearly that it will give priority to explore tight

gas among the unconventional gas options.

Sinopec North China Company, a Sinopec subsidiary, launched a large-scale

development plan in late 2011 aiming at boosting tight gas output in the Ordos Basin. Sinopec has set a target to add oil and gas annual production capacity in Ordos Basin by 1mt and 2bn m

3, respectively, between 2013 and 2015, with

an aim to take the annual capacity of oil and gas to 3mt and 10bn m3 by end-2015.

The oil and gas field in Ordos Basin is characterised as the “three lows” - low

permeability , low pressure and low output. To tackle this, key technologies like horizontal drilling and multistage fracturing are widely applied to boost output.

Sinopec finished a total of 484 horizontal wells with multistage fracturing in

2012, up significantly from 69 wells in 2011.

In mid-2012, Sinopec North China Company alone has targeted 70-80 hor-izontal wells with multistage fracturing into operation every month, imply-ing annual commencement of 840-960 wells. This suggests further in-crease in demand for multistage fracturing which will provide high-end

services providers with huge opportunities.

Since Sinopec North China Company is one of Petro-king’s key customers, the

aggressive move will likely continue to drive revenue over the coming years. In 2012 Petro-king won three tenders from Sinopec North China Company for a total of 120 multistage fracturing services jobs. We believe Petro-king is in an excellent position to capture the strong growth there over the coming years. We understand that Petro-king is on track to complete 300 multistage fracturing jobs in China this year.

Tight Gas The Major Growth Driver in Near Term

“Three low” in Ordos Basin sug-gests more demand for multistage fracturing

Aggressive exploration plan turns into opportunities for Petro-king

Figure 11: China Natural Gas Production

Breakdown in 2012

Note: China total natural gas output in 2012:

106.7bn m3

Source: CNPC, WIND, CGIHK Research

Petro-king Riding on The Strong Demand for Multi-stage

Fracturing Services in Ordos Basin

Conventional gas, 58.3%

Tight gas, 30.0%

CBM, 11.7%Shale gas,

0.05%

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While tight gas is already in mass production in China, shale gas is still at a very early stage of development. In 2012, shale gas output in China was only 50m m3, accounting for just 0.05% of China’s total gas output. The Chinese government has been actively promoting the development of shale gas resources, given the huge technically recoverable resources (~31% of total).

In mid-2011, the MLR held the first shale gas exploration auction for four

blocks. Sinopec and Henan CBM were awarded one block each.

In March 2012, National Energy Administration (NEA) officially issued the Five-

year Plan for the exploration of shale gas, suggesting that the exploration of shale gas has been adopted as national policy and the exploration has already started. According to the plan, production volume of domestic shale gas is ex-pected to reach 6.5bn m3 by 2015 and the planned production target is ~60bn to 100bn m3 by 2020.

In October 2012 MLR launched the second shale gas auction, offering 20

blocks with a total area of 20,002 km2.

In November, the Ministry of Finance (MOF) and National Energy Administra-

tion (NEA) issued a supporting policy on shale gas development in China. Companies involved in developing shale gas will get a central government sub-sidy of RMB0.4/m3 from 2012 until end-2015.

In the same month, the Ministry of Land and Resources (MLR) released the

results of the second shale gas exploration rights auction. Most of the winners are State-owned power and provincial energy companies. Of the 19 winners, only two are private companies.

While the US success in developing shale gas resources is encouraging, it will be challenging for China to reach the government target of 6.5bn m3 by 2015 as the landscape in China is quite different from that in the US: (1) The shale blocks are deeper and more scattered in China which makes drilling more difficult; (2) Short-age of water for fracturing in gas basins in China; (3) Less-developed pipeline net-work in China.

That said, more demand for horizontal drilling and multistage fracturing remains the basic requirement for the shale gas development. In particular that the increasing number of non-NOCs participating in shale gas exploration could potentially offer more opportunities for independent service providers like Petro-king, as non-NOCs generally require more technical support in exploration.

Huadian Group has won the bid for four blocks in the second round of auction for exploration rights to 19 shale gas blocks (figure 12), the biggest winner in the auc-tion. Huadian Group will therefore have huge demand for oilfield project services including production enhancement for its shale gas fields, given its limited experi-ence in unconventional gas exploration.

In January 2013, Petro-king entered into a strategic alliance framework agree-

ment with China Huadian Engineering (subsidiary of China Huadian Group). Petro-king will be the preferred partner to provide relevant oilfield project ser-vices to Huadian with respect to certain fields for which Huadian Engineering won the bid. We have not included any earnings contribution from this partner-ship, so any contract intakes from this will provide upside to our estimates.

Shale Gas—Big Potential But More Time Is Needed to Reach Meaningful Scale

Five-year Plan on Shale Gas In-dustry Suggests Explosive Growth

More challenging development in China

But more opportunities for Pet-ro-king

Strategic Alliance with Huadian Suggests Huge Opportunities for Petroking

13

Figure 12: Results of The Second Shale Gas Exploration Right Auction

Source: MLR, CGIHK Research

Figure 13: Technically Recoverable Gas Resources in China

(cubic metre trillion)

Sources: NEA, MLR, CGIHK Research

32

11

25

12

0

5

10

15

20

25

30

35

Figure 14: Shale Gas Output Target (cubic metre billion)

Sources: CNPC, CGIHK Research

0.056.5

60

40

0

20

40

60

80

100

120

2012 2015E 2020E

CAGR: 159%

CAGR: 143%

Block Winner

1 Guizhou Suiyang Huadian Coal Industry Group SOE

2 Guizhou Fenggang 1 China Coal Geology Engineering Corporation SOE

3 Guizhou Fenggang 2 Hua Ying Shanxi Energy Investment (subsidiary of Wintime Energy) Private

4 Guizhou Fenggang 3 Beijing Tai Tan Tong Yuan Natural Gas Private

5 Guizhou Cengong Tongren City Energy Investment SOE

6 Chongqing Qianjiang Chongqing Energy Investment SOE

7 Chongqing Youyang Chongqing Mining Company SOE

8 Chongqing Chengkou State Development & Investment Corporation SOE

9 Hunan Longshan Valin Hua Cheung Energy Investment SOE

10 Hunan Baojing Shenhua Geological Exploration Company SOE

11 Hunan Huayuan China Huadian Engineering Company SOE

12 Hunan Sangzhi China Coal Geology Engineering Corporation SOE

13 Hunan Yongshun Hunan Shale Gas Development Company SOE

14 Hubei Laifeng Xianfeng Huadian Hubei Power Company SOE

15 Hubei Hefeng Huadian Hubei Power Company SOE

16 Jiangxi Xiu Wu Basin Jiangxi Natural Gas Holdings SOE

17 Zhejiang Lin An Anhui Energy Group SOE

18 Henan Wen County Henan Yukuang Geo-exploration Investment SOE

19 Henan Zhongmou Henan Yukuang Geo-exploration Investment SOE

14

Figure 15: Shale Gas Resources in China

Source: EIA, CGIHK Research

15

Venezuela’s oil production has been declining since 1998. According to BP,

oil production in Venezuela dropped at CAGR of 1.9% between 1998 and 2011 (versus +1% for global oil production) (figure 18, 19). Venezuela’s oil output as a percentage of global output declined from 4.7% to 3.3% during the period (figure 17).

In 2010, OPEC confirmed that Venezuela’s Orinoco oil belt contained tar

sands deposits equivalent to ~300bn barrels of oil. Since then, Venezuela surpassed Saudi Arabia and became the country with the largest proven oil reserves in the world. In 2011, Venezuela’s proven oil reserves accounted for 18% of the world’s total (figure 16).

However, we believe limited funding is one of the key reasons for the under-

development of Venezuela’s oil industry. In particular, when former Presi-dent Chavez, “renationalized” the country’s oil industry by evicting a number of western oil companies which refused to renegotiate their contracts (including ExxonMobil and ConocoPhilips) in 2007, China has taken the opportunity to close a few “oil-for-loans” deals with Venezuela total-

ling US$36bn since 2007.

While potential political instability has always been a concern for investment

in Venezuela, we believe the victory of President Maduro in the recent elec-tion will help the country continue to maintain a good relationship with Chi-na, providing Chinese oilfield companies with huge opportunities there.

Big Reserves But Declining Oil Output in Venezuela Suggests More Investment

Figure 18: Venezuela Daily Oil Production Figure 19: Global Daily Oil Production

Source: BP, CGIHK Research

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Venezuela oil production (000 barrel)

66,000

68,000

70,000

72,000

74,000

76,000

78,000

80,000

82,000

84,000

86,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Global oil production (000 barrel)

Figure 16: Global Proved Oil Reserves

Country Breakdown


US2%

Canada11% Brazil

1%

Venezuela18%

Kazakhstan2%

Russian Federation

5%Iran9%Iraq

9%

Kuwait6%Qatar

1%

Saudi Arabia16%

United Arab Emirates

6%

Algeria1%

Angola1%

Libya3% Nigeria

2%

China1%

Others7%

Figure 17: Venezuela Oil Output As Per-

centage of Global Output


4.7%

4.3% 4.3%

4.2%

3.9%

3.3%

3.5%

3.7%

3.6% 3.6% 3.6%3.6%

3.4% 3.3%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Venezuela oil ouptut as percentage of global output

16

As shown in figure 21, major Chinese oilfield services companies, including

Petro-king, have already established business relationships with PDVSA. The low production efficiency in Venezuela has provided Chinese oilfield service providers with ample room to grow. We expect the Venezuelan mar-ket to be one of Petro-king’s key drivers.

Petro-king successfully entered the Venezuelan market in 2012. It recog-

nized HK$209m of revenue from PDVSA in 2012, mainly from well comple-tions.

As of end-March 2013, Petro-king had a contract backlog of HK$242m from

PDVSA this year (on well completion). We believe the actual revenue from PDVSA over the coming years will be far higher than this amount as we understand that PDVSA has agreed in principle to offer Petro-king 40 frac-turing jobs in the Orinoco belt between 2013 and 2015. We understand that the fracturing jobs in Venezuela could reach US$3m per job, several times higher than in China. The relationship already established with PDVSA should enable Petro-king to secure further contracts over the coming few years.

Petro-king already entered the Venezuelan market

Much higher contract value per job in Venezuela

Figure 21: Major contracts signed between Chinese Oilfield Services

Companies And PDVSA

Source: Company, CGIHK Research

Petroking (2178 HK)

Revenue from PDVSA in 2012: ~US$26.8m (HK$209m)

Backlog as of March 2013: ~US$31m (HK$242m)

Honghua Group (196 HK)

Apr-12

Contract size: US$187m (RMB1.18bil)

To sell PDVSA 12 units of land drilling rigs

Feb-13


To sell PDVSA directional drilling tools (not manufactured by Honghua)

Yantai Jereh (002353 CH)

Jan-13


To sell PDVSA cementing equipment and coiled tubing units

Venezuelan Orinoco Oil Belt Offers Big Potential for Petroking

Figure 20: Venezuela Orinoco Oil Belt

Source: CGIHK Research

17

Capex growth of oil companies has been the key driver for oilfield services pro-viders. While Chinese NOCs’ capex has historically been moving largely in tan-dem with the international oil price (figure 22), securing energy resources re-mains one of the major targets for the Chinese government. We expect Chinese NOCs to increase their capex on exploration and production (E&P) at a CAGR of 10%+ over the next few years. Oil service providers are set to benefit from this favourable trend.

According to the Chinese top three NOCs (PetroChina, Sinopec and

CNOOC), annual capex (excluding M&A) grew at a CAGR of 15% between 2000 and 2012 (from RMB105bn in 2000 to RMB565bn in 2012).

Between 2000 and 2012, capex on E&P reached RMB2,202bn

(~US$355bn), accounting for an average of ~59% of total capex during the period. The annual E&P capex grew from RMB56bn in 2010 to RMB360bn in 2012 (CAGR of 17%).

According to the three NOCs’ budget plans, the total E&P capex for the

three NOCs in 2013E will reach RMB408bn (~US$66bn), representing an increase of ~13% YoY.

Oilfield Services Demand Driven by Secular Chinese NOCs’ Capex Growth

Figure 22: China NOCs Capex vs Crude Oil Price

Sources: Bloomberg, PetroChina, Sinopec, CNOOC, CGIHK Research

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Spot WTI Price (US$/bbl) - LHS China E&P capex (RMB m)

18

Figure 24: China NOCs Capex on E&P (RMB m) Source: PetroChina, Sinopec, CNOOC, CGIHK Research

Figure 23: China NOCs Capex (RMB m) Source: PetroChina, Sinopec, CNOOC, CGIHK Research

18%

11% 12%15%

31%

30%

35%

16%

-11%

8%6%

40%

13%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

(RMB m)

CNOOC E&P capex

Sinopec E&P Capex

PetroChina E&P Capex

Change (YoY)

19%

-2%

12%

27%

16%

26%

27%

18%

12%

0%

8%

25%

9%

-5%

0%

5%

10%

15%

20%

25%

30%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

(RMB m)

CNOOC capex

Sinopec capex

PetroChina capex

Change (YoY)

19

Sinopec’s upstream expansion has been aggressive over the past few

years. After an 11% YoY decline in 2009 (aftermath of the financial crisis), Sinopec’s capex growth rate has resumed and accelerated (figure 25).

Aside from domestic market, Sinopec has been aggressively expanding its

footprint to overseas oil and gas assets over the past few years. Since 2009, it has spent ~US$30bn on overseas acquisitions (figure 26). In No-vember 2012, it was reported that Sinopec was considering an acquisition of French oil company Maurel & Prom for US$2bn. In the same month, Si-nopec announced that it would buy a 20% stake in a Nigerian oil field from TOTAL for US$2.5bn (subject to approval).

With FU Chengyu joining Sinopec as Chairman in 2011, we believe Sinopec

will likely become more aggressive in acquiring overseas upstream assets. We believe it will provide high-end service providers like Petro-king with huge opportunities to develop the overseas oilfields.

Aggressive Capex Plan by Sinopec

Accelerating growth rate of Si-nopec’s E&P capex since 2009.

Aggressive overseas expansion plan by Sinopec

Figure 25: Sinopec E&P Capex

Source: Sinopec, CGIHK Research

62%

0%2%

3%

9%

37%

72%

6%

-11%

2%12%

33%

14%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

Sinopec E&P capex (RMB m) Change (YoY)

20

Figure 26: Sinopec Major Acquisitions

Source: CGIHK Research

Date Target Stake Acquisition cost Status Key assets

(US$ bn)

2009

Jun Addax Petroleum 100% 7.22 Completed Oilfields off the coast of West Africa and Iraq

2010

Apr Syncrude Canada 9% 4.65 Completed Oil sands assets in Canada

Oct Brazilian subsidiary of Repsol 40% 7.10 Completed Oil and gas assets in Brazil

2011

Nov Petrogal Brasil 30% 4.80 Completed Oil and gas resources in Brazil

Dec Daylight Energy 100% 2.10 Completed Oil and gas resources in Canada

2012

Jan Devon Energy 33% 2.44 Completed Unconventional gas assets in Niobrara, Mississippian,

Utica Ohio, Utica Michigan and Tuscaloosa in the US

Jan Talisman Energy (UK) 49% 1.50 Completed North Sea oilfield

Total 29.81

Nov Maurel & Prom 100% 2.00 In progress Oil resouces in Africa

Nov TOTAL (Usan field) 20% 2.50 In progress Deep water oil resources in Nigeria

21

Rising Trend of Outsourcing

There is a rising trend among oil companies to use outsourced engineering and project management services. Integrated Project Management (IPM) assign-ments task an outside firm to provide engineering design, procurement, on-site management and supervision services.

Oil and gas companies are facing increasing difficulty finding and develop-

ing new reservoirs to replace the decline in output from existing oilfields (PetroChina Daqing Oilfield, the major oilfield in China, is a typical example [figure 27]). This is obvious: In the typical field development cycle, oil and gas companies first develop the easiest reservoirs and then move on to more challenging targets. It means that over time new fields to be devel-oped will become deeper, and with increasing depth will have higher pres-sures and temperatures.

According to Spears Report, the in-house subsidiaries of CNPC and Si-

nopec are estimated to have captured 80%-90% of the drilling services and completion equipment and service markets and the majority of the stimula-tion market, while the remaining markets are served by independent pri-vate oilfield services companies, such as Schlumberger, Halliburton, Baker Hughes and other Chinese players.

The in-house subsidiaries of CNPC and Sinopec focus mainly on the low-

end segments which consist of jobs with little proprietary technology and where operational experience is required, according to Spears Report. The private companies mainly focus on the high-end segments which require higher technologies due to demanding downhole conditions (e.g. high tem-perature and pressure). We expect a trend of shifting to high-end market given the increasing difficulties in oil and gas extraction.

Spears estimates that China’s drilling, completion equipment and stimula-

tion services market reached US$7.1bn (~Rmb44.7bn) in 2011. It is esti-mated that the market size will grow to US$11.5bn in 2015 and further to US$19.7bn in 2020, representing 13% and 11% CAGR respectively.

Surging demand for high-end oilfield services

High-end services providers are not directly competing with subsidiaries of NOCs

Figure 27: CNPC Daqing Oilfield Oil Output

Sources: CNPC, CGIHK Research

30

32

34

36

38

40

42

44

46

48

2004 2005 2006 2007 2008 2009 2010 2011 2012

Daqing oilfield oil output (mt)

22

Figure 29: Global Drilling Services, Completion Equipment & Ser-

vices and Stimulation Services

Source: Spears, CGIHK Research

Figure 30: Global drilling services, completion equipment & services and stimulation services (regional breakdown)


(US$ bil) 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

North America 43.5 46.5 48.3 50.4 51.7 53.1 54.6 57.3 60.2 63.1

South America 2.1 2.5 2.8 3.1 3.5 3.8 4.2 4.4 4.6 4.9

Europe 0.5 0.6 0.6 0.7 0.7 0.8 0.9 0.9 0.9 1.0

Africa 0.9 1.2 1.2 1.3 1.5 1.6 1.7 1.9 2.0 2.1

Middle East 0.7 0.9 1.0 1.1 1.2 1.3 1.4 1.4 1.5 1.6

Southeast Asia 1.4 1.7 1.8 1.9 2.1 2.2 2.4 2.5 2.6 2.7

Russia 1.1 1.3 1.3 1.4 1.4 1.4 1.6 1.6 1.7 1.8

Central Asia 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3

China 7.1 7.9 9.0 10.0 11.5 12.7 14.2 15.8 17.7 19.7

Total 57.5 62.7 66.2 70.1 73.7 77.2 81.2 86.2 91.6 97.3

Growth rate

2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

North America 6.9% 3.9% 4.3% 2.6% 2.7% 2.8% 4.9% 5.1% 4.8%

South America 19.0% 12.0% 10.7% 12.9% 8.6% 10.5% 4.8% 4.5% 6.5%

Europe 20.0% 0.0% 16.7% 0.0% 14.3% 12.5% 0.0% 0.0% 11.1%

Africa 33.3% 0.0% 8.3% 15.4% 6.7% 6.3% 11.8% 5.3% 5.0%

Middle East 28.6% 11.1% 10.0% 9.1% 8.3% 7.7% 0.0% 7.1% 6.7%

Southeast Asia 21.4% 5.9% 5.6% 10.5% 4.8% 9.1% 4.2% 4.0% 3.8%

Russia 18.2% 0.0% 7.7% 0.0% 0.0% 14.3% 0.0% 6.3% 5.9%

Central Asia 0.0% 0.0% 0.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0%

China 11.3% 13.9% 11.1% 15.0% 10.4% 11.8% 11.3% 12.0% 11.3%

Total 9.0% 5.6% 5.9% 5.1% 4.7% 5.2% 6.2% 6.3% 6.2%

Figure 28: China Oilfield Services Market


1.4 1.6 1.9 2.3 2.8 3.2 3.7 4.1 4.7 5.2 1.4 1.6 1.9 2.3 2.7 3.1

3.6 4.1

4.6 5.1

4.3 4.7 5.2

5.4 6.0

6.4 6.9

7.6 8.5

9.4

0

5

10

15

20

25

2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

US$ bn

Stimulation Services

Completion equipment and services

Drilling services

9.1%

15.9%

15.7%

CAGR

13 15 16 18 19 20 22 23 25 269 10 11 12 13 15 16 17 18 19

3537 39 40 41 43 44

4649

52

0

20

40

60

80

100

120

2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

US$ bn

Drilling services Completion and equipment services Stimulation services

CAGR

4.4%

8.8%

7.9%

23

Petro-king excels in a number of high-end technologies, including turbine-

drilling and multistage fracturing, which only a few Chinese independent oilfield services providers are capable of undertaking. Therefore, Petro-king can specialize in those technically challenging projects which require a high level of expertise, geological understanding and technological proficiency to accomplish, such as HTHP (high-temperature and high-pressure) oilfields, high H2S (hydrogen sulfide) concentration oilfields, oil and gas fields with low permeability (e.g. tight and shale fields), and offshore projects. We be-lieve, by focusing on the high-end segment, Petro-king will likely avoid fierce competition in the low-end market where the major competitors are the subsidiaries of China National Petroleum Corp (CNPC) and Si-

nopec.

Petro-king has built a successful consultancy service team that provides

IPM (integrated project management) services and supervisory services to oilfield operators in China and overseas. By providing IPM services, Petro-king achieves early involvement in project design and management which enables it to build an in-depth relationship with its customers,

facilitating subsequent contracts.

Petro-king has established long-term relationships with key customers, in-

cluding the subsidiaries/joint ventures of Sinopec, CNPC and CNOOC. For example, Petro-king has been conducting business with Sinopec, CNPC and CACT (51% owned by CNOOC) for 10 years, 8 years and 9 years re-spectively. Petro-king has also developed business relationships with many international and regional oil and gas companies such as Venineft (a 74.9% subsidiary of Russian giant Rosneft with Sinopec the minority shareholder), PDVSA (a Venezuelan state-owned petroleum company), Shell, Cono-coPhillips and EOG. The close relationship with big oil names will likely provide Petro-king with a competitive advantage to secure future con-

tracts within China and as they expand overseas.

Petro-king has had a wide geographical coverage with substantial overseas

exposure in regions including the Middle East, Russia, Australia and Algeria over the past few years. Iran represented the largest source of revenue in 2010 and 2011 (78% and 66% of total revenue respectively). While Petro-king has ceased its business in Iran, its rich experience in the Middle East enabled Petro-king to prove its overseas project execution capa-bility and has built a solid track record which paved the way for more overseas project intakes. In 2012, Petro-king successfully secured a cus-tomer, PDVSA, which marked the first step of our development in the South American market.

Company Strength

Focus on high-end technologies

Capability to offer consultancy service helps drive project in-takes

Long and well-established rela-tionship with key customers

Solid track record in overseas project execution helps drive overseas business

24

Since Petro-king focuses on high-end oil services, it has recruited a lot of

seasoned staff from state-owned oil companies and foreign oil services companies with overseas experience. Besides, the key management members have served international oil services companies (e.g. Cono-coPhillips) for a long period of time. For instance, WANG Jinlong, the Chairman, has over 18 years’ experience in the oil and gas industry. He worked at ConocoPhillips China Inc. between 1994 and 2003 where he had served as a senior drilling/production engineer. DU Heli, Managing director, was the group manager of Weatherford Integrated Service and Engineering Resource at Weatherford (China) Energy Service Ltd, and also worked at CNOOC and ConocoPhillips China Inc. Albert WONG, the Chief Technology Officer, was a Design-cum-Quality Manager at Halliburton Manufacturing in Singapore from 1990 to 1997.

In 2009, Petro-king expanded its business to the manufacture and sales of

tools and equipment, including packers, safety valves and wellhead control panels. With in-house capabilities, Petro-king can (1) lower the produc-tion cost, (2) customize the equipment, and (3) better manage the lead time of the delivery of oilfield services tools and equipment to the cus-tomers. We believe Petro-king will be able to offer more attractive pric-ing but at the same time offer similar quality services versus the inter-national competitors, which we believe will be a key to gain market

share in both domestic and overseas market.

Petro-king is building a new production plant in Huizhou, Guangdong prov-

ince in China, to increase its in-house equipment capacity in order to lower the production cost. The facilities will include a research and development centre. We expect the plant to finish construction by end-2013 and will significantly increase Petro-king’s in-house production capacity in

2014.

Management and engineering team with international experi-ence

Cost reduction through in-house manufacturing tools and equipment production

New production plant to boost in-house production capability

25

Founded in 2002, Termbray Petro-king Oilfield Services Limited (Petro-king) is an oilfield services provider specializing in the high-end segment. Its services include well evaluation and appraisal, well drilling, completion, stimulation, pro-duction, well work over, production enhancement and well abandonment. It also provides associated products. Petro-king has been listed on the Stock Exchange of Hong Kong since March 2013. Latest staff count is 519.

Petro-king is mainly engaged in three business segments, namely (1) con-sultancy service, (2) oilfield project service and (3) manufacturing and sales of tools and equipment. Oilfield project service is the major busi-ness segment of Petro-king, representing 84.7% of total revenue in 9M12.

Consultancy services consist of IPM and supervisory services in specific

technical areas within a particular project. These services cover various stages in the life of an oil and/or gas field, ranging from the exploration and appraisal stage (such as reservoir assessment) through the development and production stage (such as drilling and completion) to well abandonment (such as casing cutting).

Fees charged are generally based on (1) time spent on the project and de-

sign fees. Prices are set on a case by case basis depending on (1) well depth, (2) well complexity, (3) location and (4) the level of expertise, (5) costs and expenses on the project, and (6) competitors’ pricing. Consultan-cy service is divided into IPM (Integrated project management) services and supervisory services.

Company Overview

Focus on high-end segment

Three business segments

Consultancy services

Year Location of operations Country

Consultancy services

2003 South China Sea China

2006 Veni Oilfield, Sakhalin Russia

2009-2012 Yadavaran Oilfield Iran

Drilling services

2008 Yuanba Oilfield, Sichuan China

2011 Yuanba Oilfield, Sichuan China

2012 Fuye Oilfield, Chongqing China

Well completion services

2007 Tahe Oilfield, Xinjiang China

2008-2011 Yuanba Oilfield, Sichuan China

Heba Oilfield, Sichuan China

Hejia Oilfield, Sichuan China

2009-2012 Yadavaran Oilfield Iran

Production enhancement

2008 Xinchang Gasfield, Sichuan China

2010 Daniudi Gasfield, Ordos, Inner Mongolia China

2012 Honghe Oilfield, Zhengjin, Gansu China

Figure 31: Petro-king’s landmark operation


26

Figure 32: Petro-king’s IPM Service


Figure 33: Petro-king’s Supervisory Service


27

Oil project services: Under the oilfield project services, Petro-king assists

its customers to conduct the required processes by providing relevant pro-ject development design, supplying and installing related tools and equip-ment, as well as providing on-site project operation. Contracts usually run from two months to two years depending on the project size, nature and scope of the services.

Oil project service is divided into three sub-segments, namely (1) drilling, (2)

well completion and (3) production enhancement.

Oil project services

Figure 34: Petro-king’s Oilfield Service


28

Drilling is the cutting process achieved by applying pressure and rotation

using specific drilling equipment and auxiliary tools to build a long-lasting and stable well, connecting the reservoir and the wellhead. Petro-king’s ser-vices in drilling focus on drilling plan design and project operation, which usually include the provision of drilling tools and equipment (such as drilling tools and drill bits). Petro-king provides high-end drilling covering vertical drilling, directional drilling and sidetracking.

Petro-king is the pioneer in introducing turbine drilling to China. Turbine drill-

ing is a technique which engages hydraulic energy of injected fluid created by artificial pressure to drive a downhole motor at ultra-high speed and low-er torque.

Turbine drilling is mainly for drilling in very hard and abrasive rock where

conventional rotary drilling or other drilling results in poor conventional bit life and poor rates of penetration (ROP), which translates into high costs and time consumption. Turbine drilling is usually used at depths below 15,000 feet where rock formations are typically hard or abrasive and which do not fracture under 20,000 pound per square inch (psi). Turbine drilling significantly improves the rate of ROP and wellbore quality.

(1) Drilling segment

-Turbine drilling

Figure 35: Drilling Process


29

Petro-king has expanded into the production of oil-based drilling mud (a

form of drilling fluid) for use in drilling services in 2012 (mainly for in-house consumption). Petro-king has an oil-based drilling mud production plant in Chongqing containing production, recycling, storage and R&D centres. The current daily capacity is 340m3. Petro-king has planned to raise the capacity to 800m3 by end-2013.

Well completion establishes the channel through which oil and gas may flow

from the reservoir to the surface, and is a crucial stage in the oil and gas well construction process that follows drilling. Under the well completion services, Petro-king perforates the casing, installs the perforated casing for penetration of the reservoir, installs packers for annular isolation and installs safety valves and other well completion tools. Effective well completion will protect the oil and gas reservoir, enhance productivity, extend the life of oil and gas production, and thereby allow optimum commercial production. Petro-king completed 99 well completion jobs between 2009 and 2012.

-Oil-based drilling mud

(2) Well completion

Figure 36: Well Completion Set up


30

Production enhancement refers to the engagement of high pressure of in-

jection of fracturing fluid and proppant or acid in order to fracture the rock formations so as to enhance production and allow the well to produce eco-nomic quantities of the hydrocarbons. Petro-king’s services in production enhancement cover multi-stage fracturing (an advanced technique of frac-turing).

Fracturing is a process to create or enlarge existing fissures and cracks

through the pumping of fluid or slurry at high pressure down the well into the reservoir to increase of productivity of oil and gas reservoirs with relatively low permeability. Between 2009 and 2012 Petro-king completed 168 pro-duction enhancement jobs, of which 132 were multi-stage fracturing jobs.

Petro-king usually charges its customers in the drilling segment based on a

fixed fee plus a fee based on the time and number of personnel spent on the project. These fees are set on a case-by-case basis which normally re-flects (1) well depth; (2) well complexity; (3) location ; (4) the level of exper-tise and the value added to the project; (5) costs and expenses on the pro-ject; and (6) competitors’ pricing.

Well completion and production enhancement services are generally

charged on a project basis. Petro-king set the prices on a case-by-case ba-sis to ensure the gross profit margin for the projects.

(3) Production enhancement

Pricing strategy

Figure 37: Multi-stage Fracturing Process


31

Petro-king manufactures and sells to its customers the precision tools and

equipment, parts and components used in well completion and production enhancement (mainly safety valves and packers), as well as the wellhead control panels (wellhead control panels serve to control the opening and shutting of safety valves automatically with reference to the level of pressure at wellhead).

Petro-king plans to construct a centralized production plant and R&D centre

in Huizhou, Guangdong province in China in order to increase production capacity. Petro-king completed the acquisition of land use rights for the facil-ities in January 2013 and the operation is expected to commence in 2014. Management plans to develop new models for its packers and safety valves, as well as to develop ancillary products like air base drilling fluid and stimulation chemicals.

Manufacturing facilities to be a key growth driver

2011 9M12 2013E

Production capacity

Completion tools (machine hours) 43,930 46,925 100,000

Production enhancement tools (machine hours) - - 610,000

Control panels (labour hours) 15,206 30,413 150,000

Utilization rate

Completion tools (machine hours) 97% 96% -

Production enhancement tools (machine hours) - - -

Control panels (labour hours) 78% 87% -

Figure 38: Petro-king Manufacturing Capacity


32

Revenue from CNPC, Sinopec and CNOOC accounted for 83-98% of Petro-king’s total revenue since the beginning of 2009. These state-owned groups have many subsidiaries and affiliates in China and overseas. As such, the oil-field services providers generally find their business concentrated on one or more of the three state-owned oil groups.

Sinopec has been Petro-king’s largest customer since 2009 (figure 39). We

note that Petro-king has been reducing its reliance on Sinopec after winning more contracts in Venezuela. The revenue from Sinopec as a percentage of total revenue reduced from 97% in 2010 to 63% in 2012.

In addition, since Petro-king’s major customers have been Sinopec subsidi-

aries and joint ventures, Petro-king’s business does not actually rely only on Sinopec as a single entity but instead on a number of different Sinopec enti-ties (i.e. the Sinopec “network”) which generally enjoy autonomy in selecting their oilfield services providers. This actually helps mitigate the single cus-tomer risk, in our view.

Materials primarily comprise assembling materials and raw materials, including drill bits, drill pipe, turbine drilling tools, drill mud, tubing, wellhead and X-mas tree, swell packers, liner hangers, hydraulic pump, steel bar, tubing, control pan-els, electronic device slickline tools, packers and safety valves.

Petro-king has extensive and long-term experience in working with reputa-

ble international oilfield services providers. Major suppliers include Hallibur-ton, Packers Plus, Baker Hughes, NOV and FMC.

Petro-king is generally required to provide 10%-30% prepayment upon plac-

ing an order and to pay the balance in cash on delivery. It may be offered credit terms of up to three months after delivery.

Customer base

Key suppliers

Figure 39: Revenue from Sinopec as percentage of total revenue Sources: Company; CGIHK Research

82%

97%

90%

63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012

Percentage of revenue from Sinopec

Figure 40: Top Five Suppliers Sources: Company; CGIHK Research

73.4% 74.5%

50.3%

64.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012

Top Five Suppliers

33

After quitting its businesses in Iran and Syria (sanctioned countries), Petro-king successfully shifted its resources and manpower back to China by grasping op-portunities in the Ordos Basin tight gas campaign. In 2012, Petro-king generated 68% of revenue in China (versus 29% in 2011). Production enhancement (mainly multistage fracturing) was the key revenue driver, contributing ~50% of the total revenue (up from 8% in 2011). Petro-King generated net profit of HK$168m in 2012. Core earnings were HK$144m (after excluding non-cash gain of HK$48m on the disposal of a jointly controlled entity [JCE] and adding back IPO expenses of HK$20m and other gains of HK$7m).

We forecast Petro-king to deliver strong core earnings CAGR of 57% be-tween 2012 and 2014E. We forecast the core net profit to jump 83% to HK$263m in 2013, mainly driven by the 40% increase in revenue. We forecast revenue from production enhancement to reach HK$905m this year, contributing 50% of total revenue.

In China, key drivers will come from the continuous robust demand for multi-

stage fracturing in the Ordos Basin (tight gas) as well as Sichuan and Xin-jiang (shale gas). We expect Petro-king to fracture a total of 300 wells in China this year, more than double the 147 jobs in 2012.

Overseas, Venezuela (PDVSA) remains the key growth engine. Apart from

well completion jobs, Petro-king has secured 40 fracturing jobs for 2013-2015. We expect Petro-king to complete 5-8 jobs in 2013. We estimate rev-enue from Venezuela in 2013E to jump 125% YoY to HK$470m, represent-ing ~26% of total revenue.

Financials and Earnings Forecasts

We forecast Petro-king to deliv-er a strong core earnings CAGR of 56% between 2012 and 2014E

Multistage fracturing jobs to double in 2013

PDVSA the overseas growth engine

Figure 41: Petro-king Revenue Breakdown by Region Sources: Company; CGIHK Research

0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013E 2014E

Others

Turkmenistan

Venezuela

Algeria

Australia

Russia

Syria

Iran

China

HK$ m

34

Material costs, employee benefit expenses and technical service fee ac-

counted for a major portion of operating costs. Material cost represents the largest part of the operating cost structure, accounting for 58% of operating cost in 2012.

Despite our 11% projected increase in labour cost ratio (up from 9.2%) to

reflect the potential increase in wages to recruit engineers, we expect the material cost ratio to reduce gradually given the increase in in-house tool production. We therefore expect the EBIT margin to stay at 14% this year.

We expect Petro-king to spend HK$300-400m on the construction of new plant in Huizhou, Guangdong province in China. We expect the plant to finish con-struction in late 2013E and will start operation in early 2014E. We believe the new plant in Huizhou to start operation and will help lower material cost and thus help maintain EBIT margin in 2014E.

Capex

Figure 42: Petro-king Operating Cost Breakdown

Sources: Company; CGIHK Research

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013E 2014E

Other gain/(loss)

Others

Research and development

Technical service fee

Distribution expenses

Employee benefit expenses

Operating lease rental

Impairment of intangible assets

Amortisation of intangible assets

Dep of PP&E

Material costs

35

Key Financials


Income statement 2011 2012 2013E 2014E

(HK$ m)

Revenue

Oilfield project services 471 922 1,625 2,020

Drilling 140 131 210 250

Well completion 285 266 510 660

Production enhancement 46 525 905 1,110

Consultancy services 54 50 74 86

IPM services 41 23 34 39

Supervisory services 13 27 40 47

Manufacturing and sales of tools and equipment 35 86 120 235

Total revenue 559 1,057 1,819 2,341

Other income 9 5 9 9

Operating costs

Material costs (235) (508) (819) (1,006)

Dep of PP&E (4) (7) (33) (41)

Amortisation of intangible assets (11) (12) (13) (13)

Impairment of intangible assets 0 0 0 0

Operating lease rental (4) (10) (18) (23)

Employee benefit expenses (75) (81) (164) (246)

Distribution expenses (10) (23) (55) (70)

Technical service fee (64) (141) (222) (286)

Research and development (4) (6) (15) (19)

Others (46) (89) (144) (185)

Other gain/(loss) (1) (7) 0 0

EBIT 116 180 347 461

EBITDA 131 199 393 515

Finance income 0 0 1 3

Finance expense (4) (8) (8) (6)

Share of profit (Associates & JCE) (1) (0) 0 0

Gain on disposal of JCE 0 48 0 0

Pretax profit 112 220 340 457

Income tax expenses (20) (51) (75) (101)

After tax profit 92 170 265 356

MI (5) (2) (5) (6)

Net profit 87 168 261 350

Recurring net profit 88 144 261 350

EPS (HK$) - 0.22 0.25 0.34

Recurring EPS (HK$) - 0.19 0.25 0.34

DPS (HK$) - 0.00 0.03 0.03

Growth rate 2011 2012 2013E 2014E

Revenue

Oilfield project services -6% 96% 76% 24%

Drilling 88% -6% 60% 19%

Well completion -32% -7% 92% 29%

Production enhancement 706% 1034% 72% 23%

Consultancy services 2% -8% 50% 15%

IPM services 10% -45% 50% 15%

Supervisory services -16% 111% 50% 15%

Manufacturing and sales of tools and equipment 490% 147% 40% 96%

Total revenue 0% 89% 72% 29%

EBIT 8% 55% 93% 33%

EBITDA 12% 52% 97% 31%

Pretax profit 6% 97% 55% 34%

Net profit 3% 93% 56% 34%

Recurring net profit 3% 64% 81% 34%

Recurring EPS - - 30% 34%

Margin 2011 2012 2013E 2014E

EBIT margin 21% 17% 19% 20%

EBITDA margin 23% 19% 22% 22%

Pretax profit margin 20% 21% 19% 20%

Net profit margin 16% 16% 14% 15%

Recurring net margin 16% 14% 14% 15%

36

Key Financials


Cash flow statement 2011 2012 2013E 2014E

(HK$ m)

Pretax profit 112 220 340 457

Depreciation 4 8 33 41

Amortization 11 12 13 13

Impairment of intangible assets 0 0 0 0

Share of results of associates (0) 1 0 0

Share of results of JCE 1 0 0 0

Loss on disposal of PP&E 0 0 0 0

Share-based payments 0 0 0 0

Net finance costs 3 8 7 4

FX gains/(losses) (1) (1) 0 0

Loss from deregistration of a subsidiary 0 1 0 0

Change in working capital (82) (46) (367) (104)

Interest paid (4) (8) (8) (6)

Income tax paid (37) (35) (75) (101)

Others 0 (29) 0 0

Operating cash flow 8 131 (57) 303

Acquisition of a subsidiary (net of cash acquired) (11) 3 0 0

Purchase (disposal) of PP&E (13) (141) (350) (100)

Purchase of intangible assets 0 (0) 0 0

Acquisition of a associate 0 0 0 0

Acquisition of JCE (3) 0 0 0

Increase in pledged bank deposits (2) 14 0 0

Interest received 0 0 1 3

Dividend received from associates/JCE 0 0 0 0

Advance to associates (2) (3) 0 0

Advance to JCE (8) 0 0 0

Loan to third party (24) 24 0 0

Others 0 (57) 0 0

Investing cash flow (64) (159) (349) (97)

Proceeds from/(repayment of) bank borrowings 25 95 (70) 0

Advances received from /(repayment of) related parties (1) 0 0 0

Advances received from shareholders 0 0 0 0

Dividend paid 0 0 (120) (26)

Equity financing 0 0 913 0

Others 0 (3) 0 0

Financing cash flow 24 92 723 (26)

Net cash inflow/(outflow) (32) 64 317 180

Key Ratios 2011 2012 2013E 2014E

Valuation

PER (recurring earnings) (x) - 27.7 21.2 15.8

Dividend yield - 0.0% 0.0% 0.6%

PBR (x) - 3.8 2.6 2.3

EV/EBITDA (x) - 26.2 13.3 10.1

Operating ratios

Recurring net margin 16% 14% 14% 15%

Asset turnover 0.5 0.7 0.8 0.8

Adjusted ROE 9% 14% 17% 15%

Adjusted ROA 7% 9% 11% 11%

Interest coverage 40 27 59 138

Net debt/equity Net cash 2.5% Net cash Net cash

Current ratio 3.1 1.5 2.6 2.7

Quick ratio 2.8 1.3 1.9 1.9

Days inventories 107 92 92 92

Days receivables 263 173 160 160

Days payables 167 111 125 120

Balance sheet 2011 2012 2013E 2014E

(HK$ m)

Noncurrent assets

PP&E 21 157 474 533

Intangible assets 526 572 559 546

Investment in associate 1 0 0 0

Investment in JCE 2 0 0 0

Others 0 13 13 13

Total noncurrent assets 549 742 1,046 1,092

Current assets

Inventories 92 163 249 258

Trade receivables 350 650 946 1,106

Other receivables and prepayment 122 106 148 179

Pledged bank deposits 49 35 35 35

Cash 73 137 454 634

Total current assets 685 1,091 1,832 2,212

Total assets 1,235 1,832 2,878 3,304

Non current liabilities

Deferred tax liabilities 13 12 12 12

Bank borrowings 0 0 0 0

Total non current liabilities 13 12 12 12

Current liabilities

Trade payables 10 298 263 399

Other payables and accruals 91 199 292 251

Current income tax liabilities 14 32 32 32

Shareholders' loans 0 0 0 0

Derivative financial instrument 0 1 1 1

Bank borrowings 103 199 129 129

Total current liabilities 219 730 717 813

Equity

Shareholder equity 983 1,053 2,106 2,430

Non-controlling interests 20 38 43 49

Total equity 1,003 1,091 2,149 2,479

Total equity and liabilities 1,235 1,832 2,878 3,304

BVPS (HK$) - 1.4 2.0 2.3

37

Potential change in capex plans of the major oil companies. The reve-

nue drivers of Petro-king mainly come from the capex of oil companies. In case the oil companies cut their capex on E&P, Petro-King’s revenue and earnings would be affected.

General economic change that affects the oil and gas industry. Any

potential slowdown in economic activities could lower the demand for oil and gas, thereby lowering the demand for oilfield services.

Political risk in certain developing countries. Petro-King has business

operations in certain developing countries exposed to potential political risk. Any instability in those countries may affect the operation of Petro-King.

Concentrated customer base. Petro-king generates a majority of its reve-

nue from conducting business with a limited number of major customers, which are subsidiaries or joint ventures of Sinopec. Since 2009, revenue generated from the subsidiaries or joint ventures of Sinopec, accounted for 63%-97% of total revenue, while revenue generated from its largest custom-er, which is also a subsidiary or joint venture of Sinopec, accounted for ap-proximately 26%-62% of the total revenue for the same periods.

Shortage of senior technical experts. Oilfield service operations require a

large number of talented and experienced engineers with highly specialized skills and abilities. However, talented and experienced personnel are scarce in the oilfield service industry and competition for their service is intense. A general shortage of qualified personnel and the generally higher compensa-tion offered by international firms in the markets may also result in raising employee salaries and benefits offered by Petro-king, which could affect the profitability.

Technology risk. High-end oilfield services providers have to keep up with

the leading technology to maintain competitiveness. In case Petro-king in-correctly anticipates the technological trends or is incapable of developing advanced technology, earnings power could be affected.

Low earnings visibility. This is due to the project-based business nature.

Petro-king usually has less than one year of order visibility.

Long receivable days. Petro-king’s trade receivable turnover days were

176, 188, 263 and 173 in 2009, 2010, 2011 and 2012 respectively. Despite the long receivable days, Petro-king should be able to reduce that in 2013 and 2014 given that the credit terms are usually shorter for production en-hancement (Petro-king’s focus).

Key Investment Risks

38

WANG Jinlong (王金龍), 47, Chairman and executive Director. WANG is

primarily responsible for formulating corporate strategy and overall opera-tions of the company. He has over 18 years of experience in the oil and gas industry. WANG founded Petro-king in April 2002 as the executive director and general manager of Petro-king Shenzhen. Prior to that, he worked at

Phillips China Inc. (菲利普斯中國有限公司) [later known as ConocoPhillips

China Inc. (康菲石油中國有限公司)] between 1994 and 2003 where he had

served as a senior drilling/production engineer. WANG graduated from

Southwest Petroleum Institute (西南石油學院) with a Bachelor of Engineer-

ing degree majoring in drilling engineering in July 1986.

ZHAO Jindong (趙錦棟), 49, Vice President and Executive Director.

ZHAO joined Petro-King in 2003 as a vice general manager. ZHAO has over 28 years of experience in drilling and completion services of the oil and gas industry. Before joining Petro-king, ZHAO was the senior drilling and completion engineer at ConocoPhillips Oil Company from October 2002 to December 2003. He was employed by Phillips China Inc. (later known as Conoco Phillips China Inc.) from October 1997 to October 2002. ZHAO started his career as an engineer trainee at Drilling Institute of Minority of

Geology (地質礦產部石油鑽井研究所) in December 1983. ZHAO graduated

from China Geology University (中國地質大學) with a diploma in drilling en-

gineering in 1988.

Du Heli (杜鶴立), 42, Managing director. DU joined the Group in 2011 and

he is primarily responsible for the management of the surface facility engi-neering department, the unconventional gas department and several other departments. Mr. Du completed his Executive Master of Business Admin-istration program in May 2012 from the University of Texas at Arlington, US. DU graduated from Southwest Petroleum Institute with a Bachelor of Engi-neering, majoring in offshore petroleum engineering in 1992. Mr. Du has over 15 years of experience in offshore drilling and completion management of the oil and gas industry. From December 2006 to October 2011, DU was employed as the group manager of Weatherford Integrate Service and Engi-neering Resource at Weatherford (China) Energy Service Ltd. DU joined CNOOC (China) Limited in July 2000 where he had served as an operations department manager until 2002. Prior to that, he was employed by Phillips China Inc. (later known as Conoco Phillips China Inc.) from 1992 to 2000.

Appendix: Selected Management Profile

39

SHU Wa Tung Laurence (舒華東), 39, Chief Financial Officer. SHU joined

Petro-king in July 2010 and he is primarily responsible for the company’s overall financial strategies and daily management of financial and account-ing functions. SHU graduated from Deakin University, Australia in 1994 with a Bachelor degree in Business majoring in Accounting. He received his CPA accreditation from both the Hong Kong Institute of CPAs and the Australian Society of CPAs in 1997 and completed his CFO Programme at China Eu-rope International Business School in 2009. SHU worked in Deloitte be-tween 1994 and 2002. From 2002 to 2005, Mr. Shu was an associate direc-tor of Goldbond Capital (Asia) Limited. From May 2005 to July 2008, he served as the chief financial officer and company secretary of Texhong Tex-tile Group Limited (2678 HK) overseeing the group’s financial management functions. From July 2008 to June 2010, SHU served as the chief financial officer of Rongsheng Heavy Industries Holdings Limited and oversaw the group’s financial management functions and corporate finance activities as well as the daily management of the group’s finance department.

WONG Kwok Ping Albert (王國平), 58, Chief Technology Officer. WONG

oversees the technology development department of Petro-king. He joined Petro-king in 2011 after the company acquired the interests in Sheraton Investment. WONG has over 12 years of experience in the oil and gas in-dustry. He has been the managing director for both Star Petrotech and Stelkraft Coiled Tubing and Pumps Pte Ltd since 2009. WONG was a De-sign cum Quality Manager in Halliburton Manufacturing in Singapore from 1990 to 1997. Prior to his Master of Business Administration degreefrom the University of Warwick in UK in July 1995, WONG received his Bachelor of Science in mechanical engineering from Texas A & M University in USA in 1978. He is a member of the Society of Mechanical Engineers (ASME) and the Society of Petroleum Engineers (SPE) and received a Professional En-gineer License from Texas Board of Professional Engineers, U.S..

40

Appendix: Corporate And Shareholding Structure

Termbray Industries

33%

TCL Industries7%

Others28%

WANG Jinlong13%

ZHOU Xiaojun5% ZHAO Jindong

5%

Others9%

King Shine Group, 32%

Shareholding Structure

Note: WANG Jinlong is largest shareholder of King Shine with 41.19% interest.


41

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