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China Oilfield Halts 4 Mideast Rigs, Shares Tumble 18%

China Oilfield Services halts four Mideast rigs, shares drop 18%, despite minimal financial impact forecasted.

By Barry Stearns

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4/5, 01:51 EDT
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Key Takeaway

  • China Oilfield Services suspends operations of four Mideast rigs, impacting its short-term development and business expectations in the region.
  • Shares fell 18% in Hong Kong, nearly erasing year's gains, despite no material impact on overall business and financial position.
  • Middle East and ex-China Asia-Pacific operations significant to revenue; company aims for overseas revenue to be 40% of total by 2030.

Drilling Rig Operations Suspended

China Oilfield Services, a major player in the oilfield services sector, recently faced a significant setback with the suspension of operations for four drilling rigs in the Middle East. This suspension was announced following a notice from a key customer in the region, whose identity and the reasons for the suspension were not disclosed. This development is particularly impactful as the Middle East represents one of China Oilfield Services' largest markets outside China. The company had previously secured a $1.9 billion deal with this unnamed "first-class international oil company" in 2022, marking a significant milestone in its expansion efforts in overseas markets.

Financial Impact and Market Reaction

Despite the suspension, China Oilfield Services has stated that this event does not materially impact its overall business and financial position. The company is currently in negotiations regarding the timeframe of the suspension among other matters. However, the market reacted negatively to this news, with shares plummeting 18% in Hong Kong trading, nearly wiping out the year's gains. This sharp decline reflects investor concerns over the potential implications of the suspension on the company's future growth and operations in the Middle East.

Strategic Importance of Overseas Operations

The Middle East and ex-China Asia-Pacific operations are significant contributors to China Oilfield Services' revenue and Ebitda, jointly accounting for 11.5% of revenue and almost 13% of Ebitda in 2023. The company's overseas business, particularly in regions like the Middle East, Indonesia, and Mexico, has been growing at a faster pace than its domestic operations. Citi analysts highlighted earlier this year that the company's overseas revenue is expected to account for 40% of its total by 2030, up from 21.5% in 2023. This ambitious growth target underscores the strategic importance of expanding and maintaining robust operations outside China.

Street Views

  • Citi Analysts (Bullish on China Oilfield Services' overseas business growth):

    "China Oilfield Services’ overseas business was growing at a much faster pace than domestic operations, with the company expecting overseas revenue to account for 40% of its total by 2030, up from with 21.5% in 2023."