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Edited Transcript of 601808.SS earnings conference call or presentation 22-Aug-19 2:00am GMT

Half Year 2019 China Oilfield Services Ltd Earnings Presentation (Chinese, English)

HK Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of China Oilfield Services Ltd earnings conference call or presentation Thursday, August 22, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Meisheng Qi

China Oilfield Services Limited - Chairman

* Shujie Cao

China Oilfield Services Limited - CEO, President & Executive Director

* Yonggang Zheng

China Oilfield Services Limited - CFO

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Conference Call Participants

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* Aditya Suresh

Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst

* Neil Beveridge

Sanford C. Bernstein & Co., LLC., Research Division - Senior Oil and Gas Analyst

* Tingting Si

BofA Merrill Lynch, Research Division - Analyst

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Presentation

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Unidentified Company Representative, [1]

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Good morning, ladies and gentlemen. First of all, thanks for attending the Interim Results Announcement 2019 of China Oilfield Services Limited today. Now please allow me to introduce management representatives onstage to you: Mr. Qi Meisheng, the Chairman; Mr. Cao Shujie, CEO and President; Mr. Zheng Yonggang, CFO; and Ms. Wu Yanyan, Board Secretary.

In today's presentation, Mr. Zheng Yonggang will walk you through the financial figures and operational review for the first half year of 2019. Then he will share with you the company's outlook in the latter half of the year and the future. After that, we will open the floor for questions.

Now let me pass the time to Mr. Zheng.

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Yonggang Zheng, China Oilfield Services Limited - CFO [2]

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Good morning, ladies and gentlemen. Thanks for attending COSL's Interim Result First Conference 2019.

Please take note of our disclaimer.

Today's presentation will be divided into 2 parts: results overview and the company outlook.

In the first half of 2019, international crude oil price is around $60 per barrel. The oilfield service market has recovered, which was contributed by the increase in global expenditure, upstream exploration and development and impact of the significant increase in the amount for exploration and development in China offshore. In view of new challenge of the industry, COSL has graduated the loss into profit, with improvement of profitability to adjustment to management's philosophy and focus, continuous reform and innovation for quality improvement and efficiency enhancement as well as implementation of the technology and international development strategy.

From this slide, you can see and continuous increase for global upstream E&P CapEx and also the continuous increase for the domestic E&P CapEx, especially the continuous increase for domestic exploration investment by our affiliate, CNOOC Limited, control -- I mean (inaudible) the China offshore. From this page, you can see that both international market and the domestic market has a 2-digit growth. The management believes such kind of strong growth can continue for next few years.

Now we turn to the most interesting part: financial performance. In terms of financial performance, in the first half of 2019, COSL achieved a revenue of RMB 13.5 billion, representing 67% increase year-on-year. And due to the enhanced economy of scale, operating costs only increased 42%. So the result is we turned from the loss into profit. We achieved the net profit nearly CNY 1 billion, CNY 986 million net profit. Such kind of remarkable financial performance contributed from the 2 factors: increased operation volume and the utilization rate for our equipment, such I mean jack-up, semi-sub, marine support vessels, et cetera. The second factor is our well service technology segment. Operation volumes and revenue was greatly improved.

From this page, you can see the contribution from our technology, the well service from our technology segment. In the 2015, it's only 30%. 2016 is around 37%; 2017, 38%; '18, 42%. And the first half of 2019, we already achieved 49% our total sales revenue generated from our technology segment, well service segment. And in the next year, in the 2020, we believe we can achieve more than 50% of our sales revenue generated from our well service. And the management strive for in 2025 more than 70% of our sales revenue generated from our well service technology segment. This is our target.

In terms of performance of specific segments, the revenue for the 4 segment all increased to the different degree, among which, drilling and well service was the most significant with revenue of RMB 4.49 billion and RMB 6.62 billion, respectively. The operating profit of well service increased 129% year-on-year. So drilling segment and geophysical acquisition and survey segment have all achieved profit.

I still remember in the beginning of this year, our Chairman, Mr. Qi, in this conference room said to you -- and we tried to make our drilling segment profitable. Now we make it. In the first half of 2019, we make it. We make it profitable.

This is our 4 segment: our drilling segment representing 49% increase; our well service, 95% increase; our marine support segment, nearly 16% increase; our geophysical survey and acquisition

nearly doubled.

In terms of operating profit for our drilling segment, we achieved CNY 250 million operating profit. Of course, our well service contributes the most, more than RMB 1 billion, RMB 1.19 billion operating profit. These are our 4 segments, the financial performance.

Now we turn to the market development, domestic market and overseas market. COSL's global market capability has been further enhanced, which is continuously to coordinating the allocation of resources in both domestic and overseas market, making positive contribution to the strengthening of domestic exploration and development and promoting high-quality development of overseas business on ongoing basis while ensuring the absolute leading position in China offshore market.

In the first half of 2019, COSL made flexible allocation of resources to meet the domestic market demand, which was conductive (sic) [conducive] to the increase of our overall utilization rate and the profit return of the company. Although there was a year-on-year decrease in the number of overseas equipment, but overseas revenue reported year-on-year growth to RMB 3 billion, representing 50% increase. Last year, the first half 2018, we reported our overseas is about CNY 2 billion. Now (inaudible) with steadily increase of utilization rates and breakthrough made in the well service segments. For instance, COSL had increased operation volume of high-temperature, high-pressure wells for difficult works, made successful first attempt of the plugging and abandonment project and sold MUIL equipment to overseas market.

This is just an illustration for our domestic and overseas market. We made flexible allocation of domestic and overseas resources to meet increasing demand. We apply -- allocate 36 domestic drilling rigs, increased by 8; increase in the volume of both exploration well and adjustment well; substantial increase in operation volume of 3D acquisition and submarine cable business. In our overseas markets, we acquired 36 new overseas contract, 2 new market and 5 new clients Breakthrough in the well service segment, for example: increase in the volume of high-temperature, high-pressure wells; successful first attempt of the plugging and abandonment project and sales of MUIL equipment. This as such is illustration for our domestic market and overseas market.

Now I finish my presentation of financial review of first half of 2019. In summary, I will also emphasize 2 points: First, COSL made strong growth in terms of operation volumes, operating income and the net profit. Due to the 7-years action plan in domestic market and gradual recovery in the international market, we believe that COSL will continue to have strong growth for the next few years.

The second, such kind of strong growth mostly contributed from the well service segment. In the past few years, COSL put heavy investment on technological research. Now I will illustrate some of new tech and new business COSL just achieved.

For example, the new technology logging capability ESCOOL system. High-temperature ESCOOL logging system has been applied, and the extremely high-temperature ESCOOL logging system have achieved 232 degrees and 172 MPa is conducting high-temperate well operations in Bohai Bay.

Our oilfield chemical and drilling. The upper temperature resistance limit of the HTO Drill, high-temperature, oil-based drilling fluid, exceed 230 degrees. 932 completed drilling. This overcome major challenge such as high-temperature, high-pressure poor drilling ability drilling of target stratum and overflow.

And great market potential. In 2019, it is planned to drill and explore more than high -- more than 40 wells in offshore China and high-temperature and -pressure areas in the onshore regions are in high demand.

Another new kind of drill is the MUIL. The MUIL is our equipment to sell to the international market. With the transformation and application of multiple technology achievements, COSL has achieved the result in sales of oilfield technical equipment with the sales of a multifunctional ultrasonic imaging logging equipment. We name it MUIL. Amounting to nearly [RMB 100 million] and has achieved [batch] sales of China high-end logging equipment to world-class oilfield service company for the first time.

Now, I will illustrate to you some business. In the first half of 2019, COSL succeed in the first overseas integrated plugging and abandonment project. COSL has improved itself and accumulated valuable experience in the management, operation, logistics support for the integrated plugging and abandonment project; enhanced its reputation which laid the foundation for the implementation of subsequent well plugging and abandonment project.

From the public resource -- source, it is estimated the demands of well plugging and abandonment in Southeast Asia will see further increase in the upcoming years. Here are just some of the numbers. We saw this from the public resource -- public source. Here, 2019 and 2020 continuing to the 2021.

COSL also puts much focus on our QHSE. COSL maintains overall of [serviceability] of production safety and continuously improved quality management with satisfactory operation service and product quality. The OSHA ratio was 0.129. While making steady progress in the operation market, COSL continue to attach great importance to the promotion of top corporate governance and [adheres this] capital market.

In the first half of 2019, COSL laid emphasis on compliance operation and strengthened communications with investor and the protection of shareholders' interest and rights. During the period, COSL was included in the list of IR interactive activity of A-shares listed company and well recognized by capital markets.

Now I turn to the company outlook, the second part. Before we look forward to the second half and the future, let's take a look at the overall performance on the international oilfield service company in the first half of 2019. Based on the comparison above, you may find that oilfield service industry still face different kinds of challenge and that COSL's operating performance is in the upper range of the industry during the first half of 2019. For example, COSL achieved nearly 67% of the increase in terms of sales revenue, which is at the top of the industry, oilfield service industry. This is just an example. So the COSL leads the industry in terms -- I mean the sales revenue growth and net profit growth.

The marketing environment. Looking forward to the second half of 2019, the global, political and economic situation will still be challenged by multiple risks, resulting in the uncertainty in the trend of global oil price. In addition, despite that the rebounded oil price and increased capital investment by oil and gas company have driven the recovery of the global drilling rig market with frequent bidding activity and increasing utilization rates, overcapacity still be an issue in the short- and midterm reflected by the surge in idle drilling rate and the potential idleness of drilling rig under construction. Idle rate are likely to report significant increase in the short term due to the intensified competition for the contract.

Although the industry face above challenge, COSL is still facing development opportunities. First, oil and gas energy continue to play an important role in China energy consumption structure. And the 7-years action plan in domestic market will provide boom period for the oil service industry.

Just I mentioned before, due to the 7-years action plan in the domestic market and global gradual recovery in the international markets, COSL's growth story will continue. Hence, the recovery of industry of China, increasing effort in exploration development will further bring a positive opportunity for COSL's growth story. Currently, there are still idle resources in the market. COSL can flexibly allocate resources, so easy to meet the change of the market demand. Here are just some illustration. Oil and gas continue to make up a large proportion in China, and the 7-years action plan driving the oil service industry to a positive [society].

CNOOC CapEx in China will increase substantially in 2019. And also, we will go into the new areas, such as wind power. In line with the low carbon track, COSL actively supports development opportunity in renewable energy industry such as offshore wind power. This is a new business for the COSL.

Not only in the domestic market but also in the international market. COSL's traditional business have the new breakthrough. From this slide, you can see according to the service contract obtained by COSL, the technology and the equipment segment of our company will gradually exert scale effect in the 6 regional market. This contract will be implemented in the second half of 2019 and the next few years, respectively.

Compared with historic track record, COSL will have more well service presence in international markets. For example, in the Middle East, in Iraq, the first and second integrated service in these oilfield. And also, in the Saudi Arabia, we have signed into a huge type of drilling project. And in Kuwait, we have onshore well drilling project. And for example, Asia Pacific, in the Indonesia, drilling project and workover, cementing, stimulation and logging project. In Malaysia, just I have mentioned, some drilling and the completion for a huge cementing project and also the abandonment project. New Zealand, we have the drilling service project; Myanmar, cementing, logging and the perforating project. All those such, I mean the new project, including our -- the drilling segment service and also includes our technology service.

As Europe, we have prepared a slide of our contract status and the situation of 52 rigs operated under management by COSL as of June 30, 2019. As you may already see from our interim result, the volume in the first half of 2019 has been increased. We expect it will extend to the second half of the year.

And this is the latest information and, for this one, already been replaced by the operation. For our rig operation status in the overseas, this is the operation status in overseas market. More working volume in 2019, and we will still active in the bidding process for some idle rigs. It may change in the future because some contract are still in the progress. We'll keep you posted. Just some -- just illustration. And the most in the yellow representing in the bidding process. We will keep you posted if some -- I mean the yellow line replaced by the operation.

Financial management. In 2019, COSL has and will further adopt structural cost reduction measures and strictly control the cost to [increment] caused by the increase of volume. We take a prudent CapEx policy to optimize growth model to the intensive technology and the light asset. The CapEx budget of COSL in 2019 is about RMB 3 billion. Reasonable investment and debt repayment structure can safeguard a healthy cash flow and a 0.5% debt rating. Therefore, this will enable us to adopt different models of operation and apply it to different business models.

The enviromental protection. In line with a general trend of low-carbon disposal of the global energy industry, COSL practices a strategy of the environmental friendly and low-carbon development to the lead that clean, green and a highly efficient transformation of China offshore marine investors. We have amassed construction of 12 LNG-powered oilfield supply vessels, resulting in effective cost reduction, which are expected to be put into use in 2020.

So new business, new growth point. Here, I just want to illustrate some of the new business we will introduce in the first -- the second half, for example, in the EPS for well drilling waste. So well drilling waste refer to the waste generated during the drilling operation, including drilling cutting by the drilling bit, wasted drilling and well completion fluids and the drilling wastewaters. This is the well drilling waste. In active response to the industry request, COSL will develop environmental protection business such as EPS for waste disposal.

COSL has nearly 40 years of service experience in this field and a big operation team compromising (sic) [comprising] nearly 100 experienced staff and good experience in the provision of EPS service for over 230 wells, which contribute to the achievement of 0 safety and environmental pollution accident. As the scale of global drilling waste management market continue to expand, there will be huge market potential, and it is expected that operation volume will continue to increase. This new business will be one of the important growth point of COSL, and the revenue contribution is expected to happen very soon.

Yes, here are just some of the information we've gotten from the public source. For example, the market potential, the Grand View Research, scale of global drilling waste management market will reach USD 7.13 billion. This is the market cap. Domestic offshore waste is estimated to exceed 500,000 tonnes a year just in China. So this is a huge potential, and that we meet signing the government and industry 0 waste and 0 pollution policy. So potential, market potential, is huge.

Another new business and a new growth point is our -- the multiclient business model for our geophysical acquisition service. For geophysical acquisition service segment, COSL further class -- clarified the business development plan by determining the business focus and the mid- to long-term development path and continue the increase investment in R&D of technical products to gradually develop this multiple clients business operation capacity. Globally speaking, the multiple -- the multiclient business will continue to growth in the future. COSL has the business capability and a sound track record in Argentina, also in Brazil in multiclient business. We hope this kind of business will become another new growth for our geophysical segment. This is the multiple client business. This, I mean, the business model. Just an illustration.

And also, we will go into the wind powers, the new energy, so new -- renewable energy. Adhering to the philosophy of green development, technological innovation, COSL will further increase investment in the renewable energy, like wind power industry, and strengthen market development to increase its shares in domestic wind power market. COSL's drilling segment and the geophysical segment could benefit from this new field.

Offshore wind power market. In 2018, totally 4.45 million KW onshore wind power has installed and 6.47 million KW was under construction in China. China has become the third-largest offshore wind power country after the U.K. and Germany. So just some -- I just want to show you, and wind power also has a huge market potential. And we go in this market, and this market will benefit our drilling segment and our -- also our geophysical survey segment.

Looking to the future, with growth of oil and gas investment and the recovery of the industry, COSL will firmly adhere to the goal of technology and international development. Focus on the technological innovation as a core driving force strengthens the flexible allocation of global resources and pay attention to the new pattern of the green, environmentally friendly and low carbon. The new model and the new market is developing to realize its own service transformation. We hope to see the COSL upgrade successfully from drilling company to a service company. And finally, we want to become comprehensive solution provider.

This is our company's target: from the drilling company to a service company to be a comprehensive solution provider. This is the new model, new market and new trend.

Thank you for your consistent support. Here comes the end of my presentation. Questions are welcome, please. Thank you for time, for your support. Okay.

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Unidentified Company Representative, [3]

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Thank you for Mr. Zheng's wonderful presentation. Now we will open the floor for questions.

Please note that we will provide consecutive interpretation during the Q&A session. Please raise your question one by one and allow some time for the interpretation. If you get selected, please let us know your name and the firm you work for.

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Questions and Answers

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Unidentified Company Representative, [1]

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Okay. The gentleman in the suit. Yes.

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [2]

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Congratulations. This is Aditya Suresh from Macquarie. Two questions, first with well services. So revenue here has clearly beaten the most bullish of expectations. A lot of it is driven by -- been driven by a tech -- in-house tool production. Are you able to provide us with any breakdown of what proportion of your revenue within well services is because of our in-house tools? And what portion of that was, say, 3 years ago? Second is, within that, what sort of growth visibility do you have over the next, call it, 6, 12 months for well services? That's the first question.

The other one was in margins. Second quarter margins were clearly up versus the first quarter, along with the higher activity that you -- that we see. Can we expect margins to further improve on what is a very strong second quarter? (foreign language)

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Meisheng Qi, China Oilfield Services Limited - Chairman [3]

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[Interpreted] Thank you for your questions. Your first question about the revenue as regards of our tools and technologies. It's true that the company has been investing quite a lot of resources in our R&D for new technologies. And we have also adopted a lot of new technologies compared with that from 3 years ago. And currently, it is actually our -- the harvest season after so many years of investments in technologies.

The company will continue to put in more resources in R&D to perfect our technologies and enhance our technical capability. Currently, in terms of our R&D capability, we are among the [first idea] in the industry, and we will definitely work harder to industrialize all those technologies to improve our capability.

Just as you have heard from Mr. Zheng during his presentation, we -- through our investments in technical -- in the technical segment, we believe that new technologies will contribute more to our growth of the business in the upcoming years.

As for your second question, about the margin, let me talk about the equipment utilization rate. Currently, our utilization rate is among the high in the industry compared with our competitors as well as our own in the history.

So by following the principle of safety management, we will prepare a schedule for maintenance for all our equipment in the second half of the year.

Looking at our backlog, we have confidence that we can maintain the utilization rate at a high level in the second half of the year. Thank you.

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Unidentified Company Representative, [4]

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Okay, next question. The gentleman in white shirt, please.

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Neil Beveridge, Sanford C. Bernstein & Co., LLC., Research Division - Senior Oil and Gas Analyst [5]

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Neil Beveridge, Bernstein. Two questions. The first question is, there seems to be a pickup in rig rates in the first half of the year versus a year ago where it seems slightly better than industry trends. Can you comment a little bit about what was driving that improvement in rig rates and whether or not you expect that to continue into the second half of the year?

The second question is around your rig leasing business. Can you say how many rigs you've got under lease now and what you think is the potential to lease further rigs in the second half of the year into next year, just given the sheer number of rigs coming onto the market in China? And just say a little bit about what the margins of those leased rigs are. (foreign language)

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Meisheng Qi, China Oilfield Services Limited - Chairman [6]

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[Interpreted] Thank you for your questions. Our CEO, Mr. Cao, will take the first question.

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Shujie Cao, China Oilfield Services Limited - CEO, President & Executive Director [7]

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[Interpreted] In the first half, it's true that there's a pickup in our industry. And basically, it's because of the national plan. And if you look at our utilization of our vessels and our rigs and all our services, there has been a pickup in all these areas, not only in China but also in our overseas market.

Of course, different operations areas may have different prices. And the pickup also varies from one place to another.

But generally speaking, if you look at the overall market price, it is still basically the same. It's only that -- the difference only occurs in different vessels and the different areas and the different operations.

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Meisheng Qi, China Oilfield Services Limited - Chairman [8]

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[Interpreted] Let me take your second question about the drilling rigs and leasing. Currently, we own 39 different types of drilling rigs, and we also lease 13 rigs from outsiders.

As I said just now, we may have to arrange a maintenance to some of the drilling rigs in the second half, so therefore, based on our backlog, all the total number of contracts we have, we may continue looking for more drilling rigs to lease them.

So according to our own judgment, we may continue to look for more external resources for leasing, including rig -- drilling rigs as well as 6 vessels.

One more piece of information for your reference. Currently, we are leasing 12 land rigs. That is onshore.

Considering the low market currently, it is definitely a good supplementation for our business growth by utilizing external resources.

Thank you.

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Unidentified Company Representative, [9]

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Thank you for the management. Any more questions? The lady in black. Yes. Please. Thank you.

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Tingting Si, BofA Merrill Lynch, Research Division - Analyst [10]

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[Interpreted] So 2 questions from Si Tingting. The first question is about cost control. We noticed that the growth from labor cost as well as raw material costs, both were below the increase of revenue. Just want to understand, will this trend maintain in the second half?

The second question -- meanwhile, another question, followed by the cost control is on the outsourcing cost. Outsourcing cost has been increasing very quickly. And how do we think about the demand for outsourcing in the future? Will it reduce because of more and more self-developed technologies being put into operations?

The second question is about investment yield or investment returns. We noticed that the returns from investment grew rapidly and a lot of such growth was from wealth management. Just want to understand whether this kind of growth will sustain in the future.

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Meisheng Qi, China Oilfield Services Limited - Chairman [11]

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[Interpreted] So Mr. Cao will take your first question, and Mr. Zheng will take your second question, and thank you for your questions.

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Shujie Cao, China Oilfield Services Limited - CEO, President & Executive Director [12]

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[Interpreted] Regarding your first question about cost control. Actually, cost control has been our focus in our data operations all these years, and it is also a strategic task for us. So that's why we have been very stringent in controlling all the costs and expenditures.

As for the material cost, we took active measures to control the procurement. And meanwhile, we also conducted dynamic controlling of our warehouses. And a lot of our services were done by ourselves, for example, maintenance. Meanwhile, the cost utilization overseas were also stringently controlled and monitored. So that's why we were able to reduce the material costs in the first half.

As for the outsourcing cost and the demand, it's true that outsourcing cost increased because more vessels were rented and it will be more for leases in the future. So it's true that the outsourcing cost increased.

However, through the implementation and adoption of more and more self-developed technologies, particularly, those high-end technologies, we believe that a lot of our work will be done by ourselves instead of looking for a third party. So therefore, the -- in the high-end technology sector, there will be less need for outsourcing in the future.

As for the labor cost, what you said is also correct, that there is an increase in labor cost in the first half. However, we have been trying very hard to control, even reduce, the labor cost through different ways of labor utilization models in the future. Thank you.

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Meisheng Qi, China Oilfield Services Limited - Chairman [13]

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[Interpreted] So a quick comment on the cost control on raw material. Since last year, we started building up our own global supply chain. So if this supply chain network is put into place, we will be able to control our raw material cost even better in the future.

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Unidentified Company Representative, [14]

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Any more questions?

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Meisheng Qi, China Oilfield Services Limited - Chairman [15]

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(foreign language)

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Yonggang Zheng, China Oilfield Services Limited - CFO [16]

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[Interpreted] Yes, another quick comment on the outsourcing cost. It's true that the company is turning itself into a light-asset company. So that's why there will be less need for equipment at least in the future.

As for the returns of investments activities in the first half, you may have noticed in our financial report that our net profit is CNY 986 million, and our operate -- and net profit attributable to the shareholders is CNY 973 million, and the operating profit is 750 -- CNY 795 million.

If you look at the nonoperating profit, it's true that some of the revenue -- some of the revenues are from our investment activities and including our investment in some R&D activities. We think that these returns and this revenue is sustainable because of they are recurring activities.

So in term of this kind of activities, we will continue in the second half, in next year and even in the upcoming years. So that's why we believe that all these are sustainable.

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Unidentified Company Representative, [17]

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Thank you for the management. Last quick question for the day. So the gentleman in...

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Unidentified Analyst, [18]

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[Interpreted] So [Mr. Wu] from BOCI. Two questions. The first question is that we noticed that the revenue increased in different segments in the first half. I just want to -- the management to share with us your pipeline for the whole year revenue growth. And what will be your target for growth for the whole year?

The second question is about operating cash flow. We noticed that it is still negative in the first half and just want to understand the overall -- the cash -- operating cash flow for the whole year and also for the second half.

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Meisheng Qi, China Oilfield Services Limited - Chairman [19]

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[Interpreted] Thank you for your questions. Let me take your first question. Regarding the target of growth for the whole year. In the first half, it is obvious that the equipment contribute quite a lot to the revenue growth. And based on the backlog and all the contracts we are holding now, the management has confident that the equipment with -- and the technology will contribute more to the company in the second half. And we have confidence that we can maintain the growth in the second half. Thank you.

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Yonggang Zheng, China Oilfield Services Limited - CFO [20]

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[Interpreted] Let me take the second question about the negative operating cash flow. It's true that in our financial report, the operating cash flow, there was a reduction. This is mainly because of the dramatic increase in terms of account receivables. Among the CNY 5 billion account receivables, CNY 4.7 billion were from our limited companies. And actually, all the collection of such account receivables are guaranteed.

The second point I want to make is that RMB 4.7 billion of our long-term debt are now converted into short-term debt. And the company has decided to replace such debts by using our own cash. So therefore, at the end of the year, the cash available will also reduce accordingly.

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Unidentified Company Representative, [21]

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One last question for the day. Okay, the gentlemen in the suit, please.

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Unidentified Analyst, [22]

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[Interpreted] So 2 questions from [Mr. Liu]. The first question is about the delay rate. And we understand that you have already got a very full schedule for the utilization of all equipment, so particularly, for those -- the jack-ups. So what will be the delay rate in next year, the 2020.

The second question, about the net asset returns. For some long-term investors, your net asset returns has been below the capital cost for many years. Even though there was improvement in the first half, however, it is still below the capital cost. So what do you think that -- what kind of improvement do you think that will happen in the second half of the year based on all your efforts?

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Unidentified Company Representative, [23]

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[Interpreted] So Mr. Cao will take your first question, and then Mr. Zheng will take your second question.

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Shujie Cao, China Oilfield Services Limited - CEO, President & Executive Director [24]

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[Interpreted] Thank you for your question. About the delay rate, it's true that there is some slight increase in terms of our delay rate. However, you understand that the price is also different in different locations and the different vessels as well as the different depth of our wells because there are 250, 300 and 400 and so on and so forth. So actually, for those high-end vessels, the rate increased. By average, the overall, the rate increased. But actually, all in all, all the rigs are dependent on the demand and supply in the market.

As for next year, it's all up to the market, depending on the market situation as well as what kind of vessels will be needed by our clients. So then, we will decide the price. Domestic markets and overseas markets are quite transparent to each other, and the market factor will be the decisive factors in terms of a price.

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Yonggang Zheng, China Oilfield Services Limited - CFO [25]

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[Interpreted] Your second question about net assets returns, even though we delivered very good business performance in the first half and there was improvement in our net asset returns, however, we are still slow behind the industrial average. The management has confidence that in the upcoming years we can take our net assets returns back to the right normal in the industry. Thank you.

So one more comment about the specific measures. Actually, there are 2 things that we can do in terms of technical side: We will continue investing in technology in order to improve the contribution from our technology to our net assets returns. And secondly, from the equipment side, we will lease more equipment instead of building or buying. And by a large scale of leasing, we hope that it can also contribute to a better net assets returns.

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Meisheng Qi, China Oilfield Services Limited - Chairman [26]

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[Interpreted] So I want to make 2 comments regarding this question. The first comment is that what you have seen from our financial report is only for the half year. And if you look at the whole year, if we will maintain this growth, definitely, our net assets returns will be very close to the industrial level. And secondly, if you compare our performance with our -- with [Donghua]. Actually, all the players in the market, if you look at the ROEs, they're all low because of the low market. And we believe that they will improve when the market turns better.

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Unidentified Company Representative, [27]

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Thanks for the management again. Is there anything to add from the management?

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Meisheng Qi, China Oilfield Services Limited - Chairman [28]

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[Interpreted] Thank you very much for your coming...

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Unidentified Company Representative, [29]

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Sorry. Thank you. I'm pleased to announce that today's presentation has successfully ended. Thanks again for joining us. Goodbye, and have a nice day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]