Exploration in Bohai Bay opens the window of opportunity on investment
With the recent explosion of oil and gas production activity in China, the country will remain of key strategic importance to oilfield service companies in the coming years. One company that is already pursuing business interests in China is the UK's Expro International Group PLC, which established itself in the country 21 years ago.
According to Nigel Ashton, region director for Expro in China, "China is an extremely significant market for us. It is one of the areas of the world which has huge growth potential. Over the last few years, the country has experienced a big increase in its gross domestic product, leading to rapidly expanding local energy demands. Consequently, there is a real desire to increase domestic oil and gas production."
The road back to independence
China, which was self-sufficient in its energy production for many years, became an importer in the early 1990s. The country's oil consumption is high, ranking second only to the US. China imports 30% of its oil, most of which comes from the Middle East, but that is about to change. Recent transformation in the global economy has prompted China to look for alternative providers of hydrocarbons.
Bohai Bay is one of the most high profile and large-scale developments in the world.
Assessing the market
As a company that has spent decades in China, Expro is well placed to monitor market growth within the country.
"We first went into China in 1982 when we set up a base in Shekou in Guangdong province. The decision was in line with that of several international oil companies that saw potential in developing the South China Sea area, and we acquired some significant contracts at that time," Ashton said. "In the early stages, exploration programs led to disappointments for some operating companies. Our strategy was to focus on niche areas, such as equipment sales, especially well test equipment. The market began to pick up toward the end of the 1990s, and we have been able to capitalize on the potential we saw many years ago."
Expanding with opportunity
Expro opened its area headquarters in Beijing in 1995, and in August 2002, the company established a North China and Bohai Bay operational base in Tanggu.
The Tanggu base was established to accommodate the enormous increase in interest in the development of Bohai Bay. In the next year alone, China National Offshore Oil Corp. (Cnooc) and its partners will drill more than 600 wells in Bohai Bay.
"Expro saw an increase in sales of equipment and technology to the Chinese both onshore and offshore from 1995 to 2001, but the Bohai Bay development has given the market a new lease on life. From 2001 onward, we have started to pick up far more service-type contracts, particularly in Bohai Bay," Ashton said.
Expro has won significant contracts in the area, including the production and supply of platform wireline, memory production logging services, and memory gauges. The company has also secured a permanent monitoring contract from Cnooc, which will now be jointly handled with QuantX, Expro's new joint venture with Baker Hughes Inc.
"Our revenues have doubled in the last five years, and we are predicting those to double again over the next year," Ashton said.
Much of Expro's success in China is a result of cultivating relationships. In fact, Expro's long-term presence in China is reflected in the relationships the company has developed with the domestic operating companies. Most significant among these is the relationship with Cnooc management.
According to Kevin McCartan, area manager for the Expro Group in China, "From a service company perspective, Cnooc is one of the largest independent exploration and production cooperative companies in the world, and Bohai Bay is one of the most high profile and large-scale developments in the world."
Expro is very much aware that business in China is based on creating strong relationships. "We are making clients aware of the level of service and expertise that we can provide here. The forging of relationships provides the client with a sense of comfort in the service company's ability to deliver," Ashton said.
A matter of timing
John Loafman, vice president of surface and environmental sales for Expro Americas Inc., believes part of Expro's success has been the result of timing as well as ability. "China is a market that has changed from centralized procurement to a quasi decentralization. The driving forces behind that are the reforms which have taken place within the country," he said.
In the early days, centralized procurement meant equipment and technology would be purchased by a central organization and pass-ed on to the end user. Now, the system has opened up.
"We can talk and present to the end users, which enables us to provide them with a closer understanding of the technologies that are currently in the marketplace and the benefits that these technologies will provide for them," Loafman said.
The road forward
With the development of Bohai Bay, the long-term faith Expro has always had in China is beginning to bear fruit, and the company is looking to further enhance its presence there.
"We want to continue with the growth pattern that we have in place at the moment," Ashton said. "Thanks to the relationships we have developed with our operating partners, we have a sustainable business model based on the future production and development of the Chinese market. We see the Chinese market as a major long-term opportunity for expansion for the Expro Group."