0790

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January 2013

www.ibisworld.com.cn | 1-800-330-3772 | [email protected]

IBISWorld Industry Report 0790

Oil & Gas Drilling Support Services in China

January 2013

About This Industry ................................. 2 Industry Definition ........................................ 2 Main Activities ............................................. 2 Similar Industries ......................................... 2 Additional Resources ................................... 3

Industry Performance .............................. 4 Executive Summary ..................................... 4 Key External Drivers .................................... 4 Current Performance ................................... 4 Industry Outlook .......................................... 9 Industry Life Cycle ....................................... 11

Products & Markets ................................. 12 Supply Chain ............................................... 12 Products & Services .................................... 13 Demand Determinants ................................. 14 Major Markets .............................................. 14 International Trade ...................................... 15 Business Locations ...................................... 16

Competitive Landscape ........................... 18 Market Share Concentration ........................ 18 Key Success Factors ................................... 18

Cost Structure Benchmarks ......................... 19 Basis of Competition .................................... 21 Barriers to Entry ........................................... 22 Industry Globalization .................................. 23

Major Companies .................................... 24 China National Petroleum Corporation ........ 24 China Petrochemical Corporation ................ 25 China National Offshore Oil Corporation ...... 26 Other Players .............................................. 27

Operating Conditions .............................. 32 Capital Intensity ........................................... 32 Technology & Systems ................................ 32 Revenue Volatility ........................................ 32 Regulation & Policy ..................................... 33 Industry Assistance ..................................... 33

Key Statistics ........................................... 35 Industry Data ............................................... 35 Annual Change ............................................ 35 Key Ratios ................................................... 36 Jargon ......................................................... 37

Oil & Gas Drilling Support Services in China

WWW.IBISWORLD.COM.CN Oil & Gas Drilling Support Services in China January 2013 2

About This Industry

Industry Definition

The Oil and Gas Drilling Support Services industry provides support services for oil and gas mining companies, including directional drilling, drilling ahead, underground operations, oil testing, well testing, well logging, derrick erection, derrick repair and derrick removal. Oil and gas prospecting activities are not included in this industry.

Main Activities

The primary activities of this industry are:

Cleaning out, bailing and swabbing wells

Derrick erection, repair, removal and related services

Directional and vertical drilling

Underground operations and oil testing

Well cementing and completion

Well testing and logging The major products and services in this industry are:

Drilling services

Oil well services

Other mining services

Supplies of equipment and chemicals

Transportation

Similar Industries

0710 - Oil & Gas Drilling in China This industry operates oil and gas fields. 7671 - Engineering Services in China Establishments in the industry provide services such as engineering techniques, project planning and project management.


Additional Resources

For additional information on this industry: www.cnoocs.com/ens China Oilfield Service Limited www.antonoil.com Anton Oilfield Services Group www.cnpc.com.cn/en China National Petroleum Corporation www.stats.gov.cn/english National Bureau of Statistics China


Industry Performance

Executive Summary

In 2012, the Oil and Gas Drilling Support Services industry is expected to generate $34.9 billion. Over the past five years, revenue has been growing at an annualized rate of 10.6% per year. With rising labor costs and raw material prices, industry profit is estimated at 2.5% of revenue in 2012 – although low, profit has recovered significantly from losses in 2009 due to the global recession. A major feature of this industry is the existing oligopoly among the three state-owned oil companies, China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC). In 2012, their combined market share is estimated to be 92.6% of industry revenue. There are about 89 firms operating in this industry, employing 390,240 people with total wages of $6.04 billion. In the next five-year period, industry revenue is forecast to grow by an annualized 7.7%, to $50.5 billion in 2017. Global crude oil and natural gas prices are expected to remain high through 2017, as global demand for energy will continue to be substantial. This will give incentives to oil and gas drilling companies to invest in developing new fields, which will lead to increasing demand for drilling support services.

Key External Drivers

The key sensitivities affecting the performance of the Oil & Gas Drilling Support Services industry include: Downstream Demand - Oil and Gas Extraction Demand for oil and gas drilling support services is directly from the oil and gas drilling companies when they develop new oil and gas fields or maintain existing fields. Substantial global demand for oil and gas has significantly promoted mining activities worldwide, which leads to increasing demand for drilling support services. For Chinese oil and gas drilling service enterprises, demand for their services is mainly from domestic oil and gas drilling companies, which strive to increase output. Industry Systems and Technology - Petroleum Exploration (Own Account) Improvements in oil and gas drilling technology and systems contribute to improved industry efficiency and profitability. Pervasive Outsourcing - Contract Mining Function With greater levels of company and business outsourcing, this industry benefits by providing contract services and other support activities to the oil and gas drilling industry. World price of crude oil Significantly higher crude oil prices have a negative influence on this industry due to a greater focus on the development of alternative fuels when prices reach very high levels.

Current Performance

During the five years to 2012, the Oil and Gas Drilling Support Services industry in China has grown significantly, at an annual pace of 10.6%. The industry's rapid development is due to China's significant investment in exploration and development of oil and gas fields, the specialization and integration of drilling support service companies and improvements in technology. The exploration and development of oil and gas fields is driven by growing domestic demand and rising global prices for crude oil and natural gas. Consumption of oil and gas in China grew considerably during the past decade. Crude oil consumption in China has been increasing at an annualized rate of 7.0% in the five years to 2012. However, China's crude


oil output has only been growing 2.5% per year over the same period. Therefore, imports satisfy a large portion of domestic demand for crude oil: 56.5% of China's crude oil consumption in 2012. Automobiles consume over one-third of all refined oil in China. The sales volume of automobiles in China increased from 5.7 million units in 2005 to estimated 19.1 million units in 2012. The increasing number of automobiles and development of oil-consuming industries has strongly driven China's demand for crude oil. Investment in exploration and development Due to the increasing costs of crude oil and natural gas, oil and gas drilling companies globally have invested heavily in exploring and developing new oil and gas fields. The global investment in exploration and development of oil and gas fields increased from $110.0 billion in 1999 to about $464.7 billion in 2008. However, investment decreased by 15.0% in 2009 due to the global recession. With the slow recovery of the international economy from 2010, global investment in the exploration and development of oil and gas fields has been gradually increasing. To meet domestic demand, China has been developing oil and gas fields within its territory. The joint investment of China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec) for exploring and developing new oil and gas fields increased from $3.4 billion in 2006 to an estimated $31.3 billion in 2011, reflecting annualized growth of 56.2%. In 2012, based on a strong demand for oil exploration and drilling, most of the companies within this industry have allocated large investments in oil exploration to expand their service markets. As on-land oil reserves have been established and used for many years, the exploration and development of new oil and gas fields in China is now directed to deep underground reserves on land and offshore. China has an estimated oceanic oil and gas reserve of 40 billion tons of oil equivalent, but the development rate is low. One of the three major players, China National Offshore Oil Corporation (CNOOC) is planning on deep-water oil exploration in 2012. Service range expansion and technology improvement Currently, over 80.0% of oil and gas reserves are controlled by sovereign states or state corporations, which generally lack advanced management systems and technologies. They require drilling support service companies to provide integrated services and solutions, including services such as drilling, underground well operations, transportation and material supplies. In addition, the development of deep underground and offshore oil and gas reserves requires advanced equipment and technologies. New technologies such as horizontal drilling, deep water drilling and three-dimensional earthquake prospecting contribute to the successful exploration and development of new fields. Competitive landscape The Oil and Gas Drilling Support Services industry is dominated by domestic enterprises, most of which are subsidiaries or affiliates of the three largest oil companies in China: CNPC, Sinopec and CNOOC. These three companies control most oil and gas reserves, and the exploration and development of oil and gas fields in China. Their drilling support service subsidiaries, therefore, have advantages in obtaining service contracts. The Chinese government has no limitations on foreign oil and gas drilling support service companies entering the Chinese market. However, the involvement of foreign investment in the industry is low, as domestic market demand is mainly satisfied by domestic service providers. Foreign service companies have advantages in technologies and management, and can provide high-end technological services, but domestic firms have advantages in lower prices and an abundant labor force. For example, the daily rent of China Oilfield Service Limited's (COSL) drilling platform was $70,000 in 2007, much lower than the $205,000 daily rent of the US company Transocean Inc.


Industry performance This industry has low profitability levels due to high labor inputs, purchase costs of materials and equipment, equipment maintenance and utilities. Profit margins increased steadily in the years prior to 2009, up from a loss of 5.0% of revenue in 2004 to a profit of 5.4% in 2008. However, the profit margin has since dropped to an estimated 2.5% of revenue in 2012. This is attributed to the rising prices of crude oil and natural gas, and drilling companies' heavy investment in exploring and developing new oil and gas fields. Continuing rising labor costs and operation costs added pressure on companies within the industry. In addition, the charge for services remained low in comparison to the rising costs. The crude oil price climbed in 2007, from $50 per barrel in January to $95 in December, and averaging $72 per barrel over the year. The joint investment in exploration and development of CNPC and Sinopec increased by 35.2% for the year. Industry revenue increased by 15.1%, while employment decreased by 14.5%. The decrease in employment was due to efficiency improvements through the application of advanced equipment and technologies. From March to September 2008, crude oil prices were continuously above $100 per barrel, peaking at about $140 per barrel in July. Prices started to tumble in September and fell to $55 per barrel in late November. However, the crude oil price averaged $93 per barrel over the year. As the influence of crude oil prices on exploration and development investment lags behind oil price changes, the investment in developing new oil and gas fields was strong in 2008. Industry revenue increased by 42.0% and employment increased by 29.5%. In 2009, the global recession affected demand and service fees, resulting in a 4.4% decline in industry revenue. In 2010, the industry was mainly characterized by the surging costs for raw materials and labors, and low service charges. As a result, revenue grew minimally (06.%) and profit shrank for the whole industry. In 2011, market demand for oil and gas increases, stimulating the development of the Oil and Gas Drilling Support Services industry. With increasing prices and demand, industry revenue grew 11.2%. In 2012, despite downturn in global economic, demand for oil and gas continues rising, boosting demand for support services for oil and gas drilling. The increasing investment in exploring in gas field contribute to industry revenue growth. Revenue of this industry is estimated to grow 9.1%. Exports Exports as a proportion of industry revenue are low at an estimated 1.7% in 2012; however, export values have been growing at annualized rate of 6.5% over the past five years. Domestic service companies have price advantages over service companies from developed countries and technology advantages over service companies of less developed countries. Large domestic service companies such as COSL have gradually established their brand names in the international market. Businesses of COSL have expanded to regions such as North America, Africa, Europe, Southeast Asia, the Middle East and Oceania.


Crude oil consumption and output in China

Year Crude oil consumption

Million Tons Growth

% change Crude oil output

Million Tons Growth

% change

2006 322.5 N/C 184.8 N/C

2007 345.9 7.3 186.3 0.8

2008 365.0 5.5 190.6 2.3

2009 378.5 3.7 189.4 -0.6

2010 404.7 6.9 203.0 7.2

2011 454.0 12.2 203.6 0.3

2012* 484.9 6.8 206.5 1.4 SOURCE: NATIONAL BUREAU OF STATISTICS CHINA

NOTE: *ACMR-IBISWORLD ESTIMATES

Automobile sales volume in China

Year Automobiles sold

Million Units Growth

% change

2006 7.22 N/C

2007 8.79 21.7

2008 9.38 6.7

2009 13.64 45.4

2010 18.06 32.4

2011 18.50 2.4

2012* 19.08 3.1 SOURCE: CHINA AUTOMOBILE INDUSTRY ASSOCIATION



Average crude oil prices of the West Texas Intermediate Future Market

Year Price per barrel

US Dollars Growth

% change

2006 62.8 N/C

2007 72.3 15.1

2008 93.0 28.6

2009 61.7 -33.7

2010 79.5 28.8

2011 95.4 20.0

2012* 100.0 15.3 SOURCE: ODS-PETRODATA


Investment of CNPC and Sinopec in exploration and development of new oil and gas fields

Year CNPC investment US Billion Dollars

Growth % change

Sinopec investment US Billion Dollars

Growth % change

2006 2.36 N/C 1.00 N/C

2007 2.97 25.7 1.58 57.5

2008 3.15 6.0 8.30 425.8

2009 18.89 500.0 7.54 -9.1

2010 23.77 25.8 8.02 6.4

2011 25.20 6.0 8.38 4.5

2012* 26.51 5.2 8.65 3.2 SOURCE: ANNUAL REPORT



Industry Outlook

In the next five years, the Oil and Gas Drilling Support Services industry in China is forecast to grow strongly, driven by the active development of oil and gas fields in China, and with an increasing contribution from exports. The annualized growth rate for industry revenue is estimated to be 7.7% during the five years through 2017 to $50.5 billion. Due to the global recession in developed countries during 2008 and 2009, global economic growth was modest in 2010. This led to decreased demand and prices for crude oil and natural gas. Due to the lag between price changes and investment in exploring and developing new oil and gas fields, global investment into exploration and development is expected to decrease in the short term. Thus demand for drilling support services will be reduced globally during the next a few years. However, the rapidly growing Chinese economy will continue to demand large amounts of energy. China will invest more in developing oil fields on land and offshore, and this will result in increasing demand for drilling support services in the country. Global crude oil and natural gas prices are expected to remain high through 2017, as global demand for energy will continue to be substantial. This will give incentives to oil and gas drilling companies to invest in developing new fields, which will lead to increasing demand for drilling support services. Besides, fast development and rising investment in gas field exploration is estimated to contribute to revenue growth of the industry in the near future. Several factors will significantly promote China's GDP growth, which will lead to substantial demand for oil and gas. Strong global economic growth, especially in emerging countries, will further drive exports of Chinese products. In addition, China's domestic market will expand as Chinese people start to consume more products and services. China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) will continue to dominate this industry. Their drilling service subsidiaries are expected to be further separated from their mining businesses. Some small subsidiaries may merge into larger service companies that can provide professional and integrated support services. The drilling service support business of CNOOC is expected to grow faster than those of the other two companies, as its major subsidiary, China Oilfield Service Limited (COSL), has established competitive strengths through technology improvements, service integration, export market development and brand building. Domestic industry firms will need to upgrade their technologies to provide high-quality integrated services. They will either introduce technologies from foreign companies or develop new technologies through research and development activities. Domestic companies will focus on lower-end service markets while developing higher-end markets with improving technologies. They will continue developing emerging foreign markets like Africa, the Middle East and Southeast Asia. Small private enterprises are not likely to develop rapidly during the next five years given their limited funding ability and generally low technology level. However, some private enterprises may develop strongly by developing specialized services.



Industry Life Cycle

This industry is in the growth stage of its life cycle. Life Cycle Stage

Demand from downstream drilling companies is substantial

Service companies constantly expand their service range

Domestic service companies can still largely improve their technology level

Domestic service companies have been actively developing foreign markets

During the past five years, global demand for oil and gas was substantial and the prices of both showed a general increasing trend. Oil and Gas Drilling companies began to explore and develop more fields, especially in deep underground and offshore areas. This led to an increase in demand for professional and integrated drilling support services. There was an increasing trend for oil and gas drilling companies to outsource drilling support services to specialized service companies, which have technology and price advantages in drilling, well logging, derrick erection and related services. Drilling Companies also rent equipment such as drilling platforms from drilling service companies. This specialization will contribute to creating more demand. Currently, domestic drilling support service companies still have room for improving their technologies and systems to provide high-quality integrated services. As they invest more in research and development activities, they will become more competitive in technologies. Domestic drilling support service companies have been actively developing foreign markets. They have price advantages over service companies in developed countries, and technology advantages over those in less developed countries. As such, exports of this industry's services are expected to increase substantially in the future. Over the decade to 2017, industry value-added is estimated to increase 9.1% per year, at around the same pace as GDP growth over the period (9.0% per year).


Products & Markets

Supply Chain

Key Buying Industries 0710 - Oil & Gas Drilling in China Establishments in this industry mine crude oil and natural gas on land or offshore. Key Selling Industries 4121 - Scientific Instrument Manufacturing in China Establishments in this industry produce the apparatus and meters used for geological prospecting, drilling and earthquake monitoring.


Products & Services

Drilling services 43.0%

Oil well services 32.0%

Other mining services 11.0%

Supplies of equipment and chemicals 8.0%

Transportation 6.0%

Drilling services Drilling services form the largest service segment of this industry, and includes directional drilling, vertical drilling and horizontal drilling. This service segment requires highly skilled workers. Due to the rapid growth in other segments, the share of this segment is expected to decrease slightly over time. Oil well services Oil well services include a wide range of support activities including well testing, well logging, oil testing, well cementing and well completion. Such services rely heavily on technology as the service is generally conducted via computer or digital devices. The share of this service segment is expected to remain steady in the future. Supply of equipment and chemicals Supply of equipment and chemicals, such as multiphase meters, drilling fluids and oil dispersants, is important for oil and gas drilling. This segment is growing rapidly, as the relatively high profit margins from selling products is attracting more entrants into this market. Transportation and other services The share of transportation service is expected to decrease in the near future. Other services include rental of equipment and devices, oil water treatment and consulting services.


Demand Determinants

Development of the Oil and Gas Drilling industry in China Demand for oil and gas drilling support services largely depends on the investment of oil and gas drilling companies (IBISWorld industry report 0710) in developing new oil and gas fields or expanding existing fields. World prices of oil and gas Drilling companies' investment decisions rely on factors such as oil and gas prices and prospecting activities. High oil and gas prices and prospecting activities will lead to more investment in new field development. During the past decade, the substantial global demand for crude oil and natural gas has seen a sharp increase in prices, and drilling companies have high incentives to develop new oil and gas fields. Technology advancements also enhanced the efficiency of prospecting, especially in offshore fields. This increased activity resulted in the rapid growth of support services for oil and gas drilling in recent years. Technology Drilling companies currently outsource drilling-related services to professional drilling support service providers that have competitive advantages in technologies for drilling, well logging and derrick erection. Drilling companies also rent equipment such as drilling platforms from drilling service providers. Cost advantages Large international drilling companies may outsource some low-end services to drilling support service providers from China, which have comparative advantages in lower labor costs and operational costs. Development of alternative energy As the development of the drilling support service industry is closely related to the Oil and Gas Drilling industry, development of alternative energies such as wind power (IBISWorld industry report 4419a) solar power and nuclear power (4413) will negatively affect the Oil and Gas Drilling Support Services industry in the long run.

Major Markets

On-land oil and gas mining projects 72.0%

Offshore oil and gas mining projects 26.3%

Exports 1.7%

On-land drilling projects Oil and gas drilling support service companies mainly provide services for on-land drilling projects. China's crude oil output is expected to total 210.7 million tons in 2012, with an estimated 77.5% from on-land oil


fields. As on-land prospecting activities in China are not as active as offshore prospecting and exploration, growth of this market segment is expected to slow down in the next five years. Offshore oil and gas drilling projects Offshore oil and gas drilling projects are expected to account for about 26.3% of industry revenue in 2012. This is based on the active exploration and development of offshore oil and gas fields in China. The offshore crude oil output of China is estimated to account for 22.5% of the total output. Although China has large oceanic reserves of oil and gas, the development rate is low. The substantial domestic demand for oil and gas will significantly drive development of offshore fields. The share of this market segment is therefore expected to grow steadily over the next five years. Exports About 1.7% of industry revenue is forecast to come from foreign markets. As domestic service companies continue to develop foreign markets using their price advantage and improving technology, this segment is expected to increase slowly in the future.

International Trade

Exports in this industry are low and increasing. Imports in this industry are low and steady.

Exports in this industry are defined as domestic service companies providing oil and gas drilling support services for foreign drilling companies in territories (on-land and offshore) outside of China. Imports in the industry are defined as foreign service companies providing drilling support services for domestic drilling companies within China's territories (on-land and offshore). Export values as a share of industry revenue are expected to be low at about 1.7% in 2012. Domestic service companies have price advantages over service companies in developed countries, and technology advantages over service companies in less developed countries. Therefore, exports of this industry have experienced substantial growth during the past decade. Large domestic service companies such as COSL have gradually established their brand name in the international market. COSL has expanded into regions such as North America, Africa, Europe, Southeast Asia, the Middle East and Oceania. Imports are from globally operated oilfield service companies in developed countries. These companies have higher levels of technology and are more experienced in providing integrated high-quality support services for oil and gas fields. Import values account for 1.0% of domestic demand in 2012. Import growth slowed during the past decade due to the technology improvements of domestic service companies in China.


Business Locations

Region Percentage

North East China 34.6

Middle South China 21.1

North China 19.0

South West China 12.7

North West China 12.5

East China 0.1

Region Percentage



North China 8.3



East China 0.6

Region Percentage



North China 25.6



East China 0.1


The distribution of oil and gas drilling support service companies depends on the geological locations of oil fields and prospecting activities in China. Industry revenue comes mainly from Tianjin, Sichuan province, Henan province and Liaoning province. Tianjin has two major oil fields: Dagang oilfield and Tianjin Bohai oilfield (affiliated to CNOOC). Tianjin Bohai oilfield is the largest production base for CNOOC in China. These factors have attracted companies engaged in the Oil and Gas Drilling Support Services industry to Tianjin. In 2012, with an estimated 5.4% of total establishments and 12.8% of total employees, Tianjin is expected to account for 16.5% of industry revenue. Sichuan province is a major reserve region for natural gas in China. The total natural gas output was estimated to be 102.4 billion cubic meters, accounting for 24.7% of China's total. The major oilfield in the region is Sichuan oilfield. Sichuan province is estimated to account for 14.9% of industry revenue, with 12.6% of total employees and 3.2% of total establishments in 2012. Henan province has several medium-scale oilfields including Zhongyuan oilfield and Henan oilfield. Many service companies in Henan province are large scale, with 15.1% of employees and just 4.6% of establishments. In 2012, Henan province is forecast to account for 13.3% of industry revenue. Liaoning province has rich oil reserves and is one of the most developed oil reserve provinces in China, with several well-known and large oilfields, including Liaohe oilfield. This province has the largest number of oil and gas drilling support service companies, although these companies are generally small in scale.


Competitive Landscape

Market Share Concentration

The level of industry concentration is high.

This industry is an oligopoly of three state-owned oil companies, China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC). Their combined market share is about 92.6% of industry revenue in 2012, representing a very high industry concentration level. The three companies control most of the oil and gas fields in China, both on land and offshore. Their service subsidiaries have technology advantages over other service companies. Due to the industry's high entry barriers, private or foreign-funded enterprises are not likely to gain a high market share in the short term. Therefore, the industry concentration level is expected to remain steady.

Key Success Factors

The key success factors in the Oil & Gas Drilling Support Services industry are: Provision of a related range of mining support services A company that can provide a wide range of integrated services will gain competitive advantages. A service package will be a convenient option for oil and gas mining companies, and possibly reduce their costs. Good management of projects to be time efficient, cost efficient, etc. A mining support service company should efficiently manage projects in terms of time management, cost control, safety and pollution control. Provision of high-quality services to establish good reputation A service company has to provide high-quality services to build up its reputation, which further helps to win project orders from oil and gas mining companies. Access to professional and skilled engineers, technicians and labors Given the high technology requirement for oil and gas mining support services, highly-skilled technicians and laborers are required. Maintenance of good relationship with downstream oil mining companies In China, a mining support service company should be able to maintain a good relationship with downstream oil and gas mining companies to win contracts and project orders. Access to advanced and efficient technologies for mining support activities Service companies with access to advanced and efficient technologies for mining support activities will have higher efficiency, and will generally provide better services. Use of specialized equipment in providing mining support services Specialized equipment is used in drilling, well logging, well completion, oil testing and derrick erection.


Cost Structure Benchmarks

Purchases 53.7%

Wages 17.3%

Depreciation 7.0%

Tax and Interest 5.3%

Utilities 3.2%

Rent 2.8%

Management and Administration 2.0%

Research and Development 1.8%

Other 4.4%

Profit 2.5%

Profit This industry has low profit levels due to high labor costs, the purchase of materials and equipment, equipment maintenance and utilities. However, profit increased steadily in the years before 2009, up from a loss of 5.0% in 2004 to a profit of 5.4% in 2008. This was due to rising crude oil and natural gas prices, and drilling companies' subsequent heavy investment in exploring and developing new oil and gas fields. In 2009, this industry made a loss due to the global recession. Under increasing pressure from rising operation costs, labor costs and raw material price, plus the low service charges, the profit margin is expected to be low at 2.5% in 2012. Purchases The purchase of materials and equipment to be used in drilling support services is the largest cost item for the industry. Materials purchased include drilling equipment, exploratory equipment, specialized chemicals and fuels. Wages Total wages account for a large share of industry revenue. Employees in this industry have good technical backgrounds and are highly paid. The average wage is expected to be about $1,289 per month in 2012. Although wages are quite low compared with developed countries, they are higher than in many other service industries in China. Expenses on general management and project management are large, given the requirements for collaborative work of different operating teams. Further, wage levels in China increased substantially in recent years due to labor shortages. A feature of this industry is the high depreciation level, due to the use of advanced equipment and facilities.


Management and administration costs absorb another 2.0% of revenue and R&D 1.8%. R&D costs are relatively high in the industry as companies must continue to develop efficient technologies to remain competitive. Depreciation Depreciation is expected to increase steadily in the future, as more high-technology equipment is used. Rent and utilities Utility costs are relatively high in the industry, as drilling support services use high levels of electricity and water. Rental costs are mainly for the rental of specialized equipment. Other costs Other costs consist of a variety of expenses, including transportation, professional service fees (mainly legal and accounting), insurance and other miscellaneous costs.


Basis of Competition

Competition is medium and steady. Technology Oil and gas drilling support services generally require advanced technologies, especially when the oil or gas is drilled from deep underground or offshore. High technology levels can expand the service scope of a drilling support service company. Currently, the technology level of domestic service companies is lower than that of multinational service providers. The technology requirement also results in a need for a highly skilled, professional workforce. Service quality and reputation Service quality goes along with reputation of a drilling support service company. A company has to establish its brand or reputation through the projects that have been completed in the past. As oil and gas drilling activities have extremely high requirements for safety, drilling productivity and environmental protection, high-quality support services have to be provided. Range of services Companies that can provide wider range and integrated services will gain competitive advantages. As oil and gas drilling activities involve a series of complicated procedures such as well logging, well completion, drilling and oil testing, a complete service package is a convenient option for oil and gas drilling companies, and can possibly reduce their costs. The integrated services provided by one service company can also ensure equipment compatibility and higher service quality. Pricing Although oil and gas drilling companies are not very sensitive to service prices, lower-priced services with equal quality will generally mean a competitive advantage. This is especially true for low-end generic services that do not need high technology levels. Currently, domestic service companies enjoy price advantages stemming from relatively lower labor costs and other operational costs. Relationships with downstream oil and gas companies As the oil and gas field projects are controlled by the drilling companies, service companies need to maintain good relationships with the drilling companies to win project orders from them. As many drilling companies in China have their own subsidiaries providing drilling support services, other service companies seldom win orders from these drilling companies. External competition External competition for domestic oil and gas drilling support service companies mainly comes from service companies from other countries, especially globally operated firms. They are generally more competitive in technologies and are more experienced in providing integrated, high-quality support services for oil and gas fields. However, they often lack the price advantages of domestic service companies.


Barriers to Entry

Barriers to entry are high and steady.

Barriers to Entry checklist Level/Impact Industry Competition Medium

Industry Concentration High

Life Cycle Stage Growing

Capital Intensity High

Technology Change Medium

Regulation and Policy Medium

Industry Assistance Low

SOURCE: IBISWORLD

Large capital investment A large capital investment is required to establish operations in this industry. Firms need to invest heavily in large-scale equipment, such as land-based and offshore drilling rigs of various sizes. The industry also requires substantial working capital. Service companies should be able to fund activities until day-rate or progress payments (in the case of a lump-sum contract) are made. Established reputation Companies with good reputations established through successful projects in the past, are more likely to succeed. This is particularly true for obtaining contracts related to ongoing well maintenance. High technology Oil and gas drilling support service activities have high requirements for technologies. Therefore, potential entrants should have access to engineers and technicians that understand and use advanced technologies. Relationships with oil and gas companies In China, there is a natural bond between major oil drilling companies and drilling support service companies. A service company should be able to win project contracts from drilling companies and maintain good relationships with them.


Industry Globalization

The level of globalization is low and steady.

The Oil and Gas Drilling Support Services industry is subject to a low globalization level, which is expected to increase steadily over time. This industry is dominated by domestic enterprises; in 2012, only about 4.7% of enterprises in this industry were subject to foreign ownership, including wholly owned foreign enterprises or joint ventures from Hong Kong, Macau and Taiwan. Revenue generated by these companies is expected to account for 6.7% of industry revenue in 2012. Although the Chinese government has set few limitations on the entry of foreign investment into the industry, the level of foreign investment in the industry is low. This is due to the natural link between domestic oil and gas drilling companies and domestic service companies. The rapid development of domestic service companies has also prevented any substantial increase in foreign investment over the past five years. Export and import levels are both very low in this industry. Domestic drilling companies may outsource projects that require high technologies to foreign service companies while domestic drilling support service companies are developing foreign markets with their price advantages and improving technology levels. ACMR-IBISWorld expects that domestic enterprises will continue to dominate the industry over the next five years.

Enterprises by ownership type (2012*)

Ownership type Revenue share

Percentage Enterprise share

Percentage

State owned 72.0 13.6

Collectively owned 1.6 4.7

JECE** 0.4 2.6

Shareholding 4.7 3.7

Private 1.8 36.1

Foreign 6.7 4.7

Other 12.8 34.6 SOURCE: NATIONAL BUREAU OF STATISTICS CHINA

NOTE: * ACMR-IBISWORLD ESTIMATES **JOINT-EQUITY COOPERATIVE ENTERPRISE


Major Companies

Major Player Market Share

China National Petroleum Corporation 59.0% (2012)

China Petrochemical Corporation 21.0% (2012)

China National Offshore Oil Corporation 12.6% (2012)

Other 7.4% (2012)

China National Petroleum Corporation

Market Share: 59.0%

China National Petroleum Corporation (CNPC), which was known as China National Petroleum Company until 1998, is the largest oil company in China. CNPC owns most of the oil fields, refineries and filling stations in the northern area of China, while Sinopec owns those in China's southern areas. CNPC has 4 wholly owned subsidiaries, 12 controlled subsidiaries, 11 refining enterprises and 38 other relevant enterprises. PetroChina Co. Ltd. is the largest subsidiary of CNPC and controls over 70.0% of the crude oil reserve in China. It was listed on the Hong Kong and New York stock exchanges in 2001. CNPC is one of the largest providers of oil and gas drilling services in the world. It has over 170 earthquake prospecting teams, over 200 seismoscopes, over 710 well testing teams and 1,750 teams for underground well operations. Over 20 subsidiaries of CNPC are engaged in drilling support services, including China Petroleum Logging Co. Ltd. and the Bureau of Geophysical Prospecting. They provide services such as earthquake prospecting, drilling, well testing, well logging, oil testing, supplies and transportation. In 2007, the mining support service businesses of CNPC experienced significant growth in terms of work volume and technology improvement. It used 870 drilling rigs to drill 12,952 oil wells in the domestic market during the year, realizing a total drilling depth of 23,180 kilometers. The number of oil wells drilled with horizontal drilling and underbalanced drilling technologies totaled 806 and 155, up 54.4% and 93.7% respectively from 2006. Its horizontal drilling technology made major progress, with the oil reservoir encountering rate increasing to 84.6%. In recent years, CNPC has entered foreign markets with its business expanding into Africa, the Middle East and South America. In 2007, CNPC realized new contracts valued at $4.3 billion for its overseas engineering and technology service businesses. It completed contracts valued at $3.7 billion in 2007, up 40.7% from 2006. During the year, 487 engineering and service teams served oil companies in 44 countries and regions. The number of drilled wells and total drilling depth from overseas markets totaled 1,310 units and 2,490 kilometers respectively, accounting for about 10.0% of the domestic market. In 2007, 58 well-testing teams were operating in 22 foreign countries including Sudan, Kazakhstan, Iran and Indonesia. A total of 2,792 well testings were completed in foreign markets, compared with 72,979 in the domestic market.


In 2008, CNPC used 868 drilling rigs to drill 14,125 oil wells in the domestic market and completed a total drilling depth of 28,284 kilometers. At the same time, with 186 drilling rigs CNPC drilled 1,036 oil wells and realized 226,400 kilometers in international markets, mainly in Sultan, Kazakhstan, Venezuela, Oman and Indonesia. Its well-testing teams developed service markets in Niger, Turkmenistan, Uzbekistan and Chad, with well-testing efficiency increasing greatly compared with 2007. In 2009, CNPC increased research and development and technology innovation with a greater application of horizontal wells and greater drilling numbers. CNPC implemented 505 horizontal wells and 240 wells with underbalanced drillings for the year, which contributed to its strong performance in 2009 and 2010. In 2010, more investment was used to secure sustainable provision of oil and gas products. Therefore, the cost of support activities for oil and gas drilling increased by 18.4% from 2009, totaling $3.4 billion. In 2011, the exploration division absorbed investment of $25.2 billion, adding 715 million tons to its overall oil reservation. In September, it acquired Bow Energy Limited in Canada, which was mainly engaged in oil exploration in gas layers. This was expected to be a significant driver of CNPC's international oil development business. In December 2012, CNPC reached an agreement with the largest Canadian gas company ENCANA Corporation. According to the agreement, CNPC invested about $2.18 billion, acquiring 49.9% stake of a shale gas project in Duvernay, central west of Alberta State in Canada. This gas field in Duvernay has nine drill wells. This is expected to be a stimulus for development of oil and drilling business abroad.

China Petrochemical Corporation

Market Share: 21.0%

Headquartered in Beijing, China Petrochemical Corporation (Sinopec) is the second-largest oil company in China. Before 1998 it was known as the China Petrochemical Company. Sinopec owns most of the oil fields, refineries and filling stations in the southern part of China. It was listed on stock markets in Hong Kong, New York, London and Shanghai in 2001. Over 10 subsidiaries of Sinopec are engaged in drilling support services, including the Bureau of Northeast Oil Management and the Bureau of North Oil Management. In recent years, Sinopec has developed foreign markets for oil and gas drilling engineering and services. It now serves foreign regions such as Africa, the Middle East, North America and South America. In 2007, Sinopec realized new contracts valued at $1.9 billion, up 27.8% from 2006. It completed contracts valued at $1.2 billion, up 39.1% from 2006. In 2007, 205 oil and gas drilling engineering and service teams worked in 31 foreign countries. In 2009, Sinopec drilled 3,667 wells, including 588 exploration wells and 3,079 development wells. In addition, 3,636 wells were completed. In 2008, Sinopec drilled 642 new wells using horizontal drilling technology. In 2007, the number of drilled wells using horizontal drilling technology increased substantially to 322, doubling the 2006 rate. This was due to the application and improvement of horizontal drilling technology. In 2010, Sinopec increased investment in exploration of oil fields; 621 oil wells were drilled during the year, with total depth of 1,774 kilometers. Output of crude oil increased by 17.6% from 2009, to 328 million barrels. Additionally, due to increased investment in the areas north-east and west of Sichuan province, the cost for oil exploration increased by 3.9% from 2009, to $1.5 billion.


In 2011, Sinopec reinforced oil exploration in Yuanba and Erdos with increased investment. Another four million barrels of oil equivalent were added to its oil reservation over the year. Overall revenue gained by the exploration and mining division amounted to $37.4 billion, up 35.4% from 2010. In 2012, Sinopec continued developed its oil exploration in Tarim Basin and Erdos, and gas exploration in Sichuan Basin and Erdos Basin, leading to high crude oil output growth. Revenue gained by the exploration and mining division reached $19.9 billion in the first half of 2012.

China National Offshore Oil Corporation

Market Share: 12.6%

China National Offshore Oil Corporation (CNOOC) is the third-largest state-owned oil company in China. It was established in 1982 and is responsible for the mining of crude oil and natural gas in the seas of China. It has developed from an oil mining company to an integrated petroleum enterprise, with businesses covering oil exploration and mining, refining and automotive fuel distribution. Currently, CNOOC has three public subsidiaries listed on the New York and Hong Kong stock markets and one public subsidiary listed on the Shanghai Stock Exchange. China Oilfield Service Limited (COSL) is the major subsidiary of CNOOC providing drilling support services. COSL is the largest offshore oil and gas drilling service provider in China. The company is headquartered in Tianjin city and originated from the merger of 10 specialized service subsidiaries of CNOOC in 2001. It was listed on the Hong Kong Stock Exchange in 2002. In September 2007, COSL was listed on the Shanghai Stock Exchange. COSL has over 100 operating ships, including 15 drilling ships, 7 earthquake prospecting ships and 4 fueling ships. It operates and manages 34 drilling platforms. The company's businesses can be divided into four modules: drilling services, oil well technologies services, ship services and geophysical prospecting services. Market shares of the four modules in the domestic market were 95.0%, 60.0%, 70.0% and 80.0%, respectively, in 2007. During 2007, the four modules contributed 42.0%, 25.0%, 15.0% and 16.0% to total revenue of COSL, respectively. About 90.0% of the company's revenue is from offshore drilling services. About two-thirds of COSL's drilling services revenue is from business with CNOOC Limited, the leading upstream offshore petroleum company in China. In 2008, CNOOC Limited enhanced its exploration of China's seas with an investment of about $1.0 billion, much of which benefited COSL. The company has been actively engaged in merger-and-acquisition activities in recent years to introduce high technologies and advanced international management experience. In September 2008, COSL acquired the Norwegian public company Awilco Offshore ASA (Awilco), at a cost of about $2.5 billion. The acquisition enabled COSL to have the sixth-largest offshore drilling team in the world, with a total of 36 drilling platforms operating and under construction. Awilco was established in January 2005 and was listed on the Oslo Stock Exchange in May 2005. Its main business is offshore oil and gas drilling, operating in Australia, Norway, Vietnam, Saudi Arabia, the Mediterranean Sea and Southeast Asia. By September 2008, Awilco had five new operating jack-up drilling platforms. It also had three jack-ups and three semi-submersible drilling platforms being constructed. In 2009, the drilling service revenue of COSL increased 71.0% to $1.5 billion, mainly due to the full-year operations of CDE (COSL Drilling Europe AS), increased efficiency from newly added equipment and the full-year operations of COSL942 and three on-land rigs.


In 2010, COSL increased investment in research and development to enhance its competitiveness in drilling services. Ten oil and gas fields were discovered during the year, with output totaling 50 million tons domestically. By the end of 2011, COSL had expanded its business to countries and regions across North America, Africa, Europe, Southeast Asia, the Middle East and Oceania. Revenue from foreign markets accounted for an estimated 20.0% of the company's total revenue. In 2011, COSL reported revenue of $2.85 billion, up 6.9% from 2010. COSL is making further preparations for explorations in deep oceans with significant technical discoveries. It planned to start deep-water oil exploration in 2012, which it expects to be a largest driver of revenue in the long run. In the first three quarters of 2012, due to the high working efficiency of equipment implemented in 2011 and newly installed equipment this year, the working load of COSL increased, contributing to revenue growth. In the first nine months of 2012, COSL reported revenue of $2.57 billion, up 22.6% compared with the same period in 2011.

China Oilfield Service Limited - financial performance

Year Revenue

US Million Dollars Growth

% change NPBT


% change Assets


% change

2005 601.8 30.3 116.8 19.9 1183.8 7.2

2006 818.6 36.0 182.0 55.8 1647.9 39.2

2007 1215.1 48.4 376.9 107.1 3035.6 84.2

2008 1784.6 46.9 475.9 26.3 8152.4 168.6

2009 2686.0 50.5 550.5 15.7 8921.4 9.4

2010 2667.7 -0.7 609.7 10.8 9393.4 5.3

2011 2851.0 6.9 625.0 2.5 10034.2 6.8 SOURCE: ANNUAL REPORT

Other Players

Anton Oilfield Services Group Headquartered in Beijing, Anton Oilfield Services Group is a large private enterprise providing support services for oilfields. The company employed over 1,262 people in 2011. The main clients of Anton include CNPC, CNOOC and Sinopec. Anton has four major business segments: drilling technology services, well completion equipment services, downhole operation services and oilfield equipment services. The four segments contributed 15.7%, 25.4%, 45.3% and 13.6% to company revenue in 2011, respectively. Specific services include well completion, well cementing, drilling, drilling equipment rent, oilfield water treatment and well washing. Anton's businesses are spread over North China, North West China, North East China and South West China, which accounted for 21.1%, 33.1%, 31.7% and 14.1% of total revenue in 2011, respectively. In 2012, with fast development of overseas projects and increasing investment in gas exploration in local market, the company realized stable revenue growth. In the first half year of 2012, the company reported revenue of $126.6 million.


In 2011, revenue amounted to $194.8 million, a 38.7% increase from 2010, due to strong domestic demand for natural gas exploration and the expansion of its overseas business. Contribution from business abroad increased to 22.8%, up from 16.8% in 2010. A drop of profit in 2011 was caused by the operating loss of one of its pipe manufacturing subsidiaries. In 2010, Anton's development was due to its increased focus on technology innovation and successful business restructuring. Oil and gas drilling services became its major business, accounting for over 80.0% of revenue, in contrast to 58.0% in 2009. In August 2008, Anton established a subsidiary, Anton Oilfield Services International, to manage its overseas businesses. In December 2007, Anton was listed on the Hong Kong Stock Exchange and raised $110.8 million. In November 2007, Anton acquired Beijing Haineng Haite Oil Technology Development and Beijing Huarui Meier Oil Development. Also during 2007, Anton established its overseas subsidiary, Anton Energy Services Corporation. Anton established the Anton Research Institute, and developed new services such as well completion and well cementing. Copower Enterprise Co. Ltd. Copower Enterprise is a private enterprise headquartered in Yinchuan city in Nei Mongol Ningxia Autonomous Region. It originated from Yinchuan Sanding Industrial and Trade, which was established in 1986. The main businesses of Copower include oilfield prospecting and exploration, construction, drilling, well cementing, well logging, oil testing, well fracturing, well repair and oilfield materials supply. The company cements over 200 wells annually, tests for wells as deep as 3,000 meters and completes fracture acidizing for wells as deep as 5,000 meters. The subsidiary Yinchuan Changlong Petrochemical Industrial was jointly established by Copower and Changqing Industrial Group in 1998. It is engaged in oilfield prospecting. Copower mainly serves Changqing oilfield, which is located across Shaanxi province, Gansu province and Nei Mongol Ningxia Autonomous Region. In 2011, Shaanxi Changhe Science and Technology center was established based on its cooperation with Yanchang Petroleum Corporation. Drilling footage of the company totaled 270 kilometers over the year. Xinjiang Zhundong Petroleum Technology Co. Ltd. Xinjiang Zhundong Petroleum Technology (XZPT) is a private enterprise established in 2001, originating from the Zhundong Oil Mining Factory of the Xinjiang subsidiary of CNPC. XZPT was listed on the Shenzhen Stock Exchange in January 2008. By the end of 2010, the company employed 1,130 people. XZPT's main businesses are: oil technology services, construction and installation services, transportation services and chemical product sales. The four business modules accounted for 76.1%, 14.7%, 5.8% and 3.4% of revenue in 2011, respectively. In 2011, the company reported revenue of $60.0 million, up 12.6% from 2010. In the first half of 2012, the company realized revenue of $24.6 million, up 14.1% compared with the same period in 2011. Total profits decreased as low workload and rising labor and material costs in this period. XZPT provides services for Xinjiang Oilfield Company, Tarim Oilfield Company, the northwest subsidiary of Sinopec and Turpan-Kumul Oilfield Company. XZPT has three main subsidiaries: Xinjiang XZPT Transportation Service., Xinjiang XZPT Petrochemical Co. Ltd., and Xinjiang Zhundong Dingjia Industrial and Trade Co. Ltd. Daqing Sanhuan Drilling Engineering Co. Ltd.


Daqing Sanhuan Drilling Engineering is a private enterprise established in 1984, originating from a drilling team of the former state-owned Daqing Sanhuan Group. Sanhuan Drilling provides drilling services for the Daqing oilfield, Jilin oilfield, Hailar oilfield. The company's main business covers oilfield drilling and other engineering operation services. Its annual production capacity is over 400 oil wells and 100 drinking water wells, with total drilling depth of 600,000 meters. Sanhuan Drilling has 16 drilling subsidiaries and 10 affiliated subsidiaries engaged in machine repair, drilling head manufacturing and transportation. The affiliated subsidiaries provide services such as transportation, equipment installation, machine repair and maintenance for the drilling subsidiaries. Sanhuan Drilling also has a major subsidiary engaged in manufacturing textile products. Haimo Technologies Incorporated Haimo Technologies Incorporated was established in 1994 in Lanzhou, Gansu province. The company produces multiphase meters, with the patented Haimo brand, and provides mobile well testing services for oil companies. Its clients include CNPC, CNOOC, Sinopec, Shell, British Petroleum and Total. Over 200 Haimo multiphase meter skids are used in oilfields in countries such as China, Libya, Venezuela, Indonesia and the Congo. More than 2,500 well tests have been carried out under mobile multiphase well testing services contract. Over 90.0% of the company's revenue is from foreign markets with products exported to the Middle East, Africa, South America and Southeast Asia. Haimo Tech has two manufacturing facilities in China, in Lanzhou city and Dongying city. The subsidiary Haimo International acts as the company's regional headquarters in Dubai, United Arab Emirates. Another subsidiary Haimo (Oman) is an operating base providing well testing services. Haimo Tech was listed on the Shenzhen Stock Exchange in 2010. The company reported revenue of over $14.4 million in 2010, down 17.0% from 2009. The decline in revenue was due to inadequate output capacity causing several large deals to be postponed to 2011. In 2011, the company gained $23.2 million, 61.1% growth from 2010. Affected by the turbulence in East Asia, it did not expand its business in Syria as planned over the year. Business in the United Arab Emirates, however, increased by 255.0% from 2010, representing 56.0% of overall revenue. In 2012, the subsidiary of the company acquired OSS company in Columbia. This will provide stimulus in revenue and profit growth of the company by extending business into Columbia and South America. In the first three quarters of 2012, the company reported revenue of $15.0 billion.


Anton Oilfield Services Group - financial performance

Year Revenue


% change NPBT


% change Assets


% change

2006 31.0 70.3 9.8 75.0 63.5 187.3

2007 64.9 109.4 14.9 52.0 242.0 281.1

2008 109.8 69.2 10.4 -30.2 277.0 14.5

2009 101.0 -8.0 5.5 -47.1 262.3 -5.3

2010 140.4 39.0 18.6 238.2 323.6 23.4

2011 198.4 38.7 17.4 -6.5 386.4 19.4 SOURCE: ANNUAL REPORT

Xinjiang Zhundong Petroleum Technology Co., Ltd. - financial performance

Year Revenue


% change NPBT


% change Assets


% change

2006 31.5 9.0 3.9 -4.9 38.0 5.6

2007 33.4 6.0 4.3 10.3 44.6 17.4

2008 38.5 15.3 3.8 -11.6 84.8 90.1

2009 42.3 9.9 2.2 -42.1 99.8 17.7

2010 53.3 26.0 0.4 -81.8 98.5 -1.3

2011 60.0 12.6 2.4 489.3 101.7 3.2 SOURCE: ANNUAL REPORT

Yinchuan Changlong Petrochemical Industrial - financial performance

Year Revenue


% change NPBT


% change Assets


% change

2006 31.9 115.5 3.1 N/C 43.2 125.0

2007 37.8 18.5 5.3 73.8 67.1 55.3

2008* 41.0 8.5 6.9 30.2 74.8 11.5

2009* 36.4 -11.2 5.1 -26.1 70.0 -6.4

2010* 42.3 16.2 5.4 5.9 75.2 7.4

2011* 45.9 8.6 5.6 4.5 79.8 6.1 SOURCE: NATIONAL BUREAU OF STATISTICS CHINA



Daqing Sanhuan Drilling Engineering - financial performance

Year Revenue


% change NPBT

US Thousand Dollars Growth

% change Assets


% change

2006 27.5 7.4 380 72.7 44.4 4.0

2007 27.8 1.1 380 0.0 46.5 4.7

2008* 29.0 4.3 410 7.9 49.6 6.7

2009* 28.4 -2.1 350 -14.6 45.9 -7.5

2010* 30.0 5.6 360 2.9 47.5 3.5

2011* 31.3 4.4 369 2.5 48.8 2.7 SOURCE: NATIONAL BUREAU OF STATISTICS CHINA



Operating Conditions

Capital Intensity

The level of capital intensity is high.

Both wages and depreciation account for substantial shares of industry revenue

Professional and advanced equipment is needed in activities such as drilling

Mining support services require large numbers of highly skilled workers The labor to capital ratio represents the number of labor units used for every unit of capital. ACMR-IBISWorld uses total wages as a proxy for labor and depreciation as a proxy for capital. With a capital to labor ratio of 0.33:1, this industry is subject to a high capital intensity level. However, both wages and depreciation account for significant shares of industry revenue. This industry uses high-technology equipment and facilities for oil and gas drilling support services, such as drilling and well logging. Enterprises constantly develop and use new equipment and technologies to improve their work efficiency. Existing equipment also requires frequent maintenance. Therefore, the industry has a high depreciation level. Many skilled technicians and workers are employed in the industry. In 2012, employment is estimated at over 390,240 people. Employees in this industry generally have a good technical background and are highly paid. The average monthly wages of individual employees is expected to be $1,289 in 2012. Therefore, total wages account for a large share of industry revenue. The industry's overall capital intensity level is expected to increase steadily in the future as more investment is made into equipment installation and the average wage continues to increase.

Technology & Systems

The level of technology change is medium.

The Oil and Gas Drilling Support Services industry is subject to a medium level of technology change, which is expected to increase over time. Main drilling technologies include well logging while drilling, cluster well drilling, horizontal well drilling and branch well drilling. Main oil testing technologies include well fracturing and well pressure recovery. Main well repair technologies include low permeability unblocking and tube expansion. Most equipment used in the industry has been computerized or digitalized. Such equipment includes well logging devices, rock center image scanners, quantitative fluorescence analyzers and remaining carbon analyzers. Many companies have introduced management systems to improve work efficiency and work environment, including Office Automation systems, GPS vehicle monitoring, management systems, QHSE (quality, health, safety and environment) systems, and ERP (enterprise resource planning) systems.

Revenue Volatility

The level of volatility is high.


Regulation & Policy

The level of regulation is medium and the trend is steady. Mineral Resources Law of P. R. China The law was promulgated in 1986 and revised in 1996. It sets basic regulations for all mineral exploration and development activities in China. According to the law, enterprises should ensure the safety of people engaged in mining-related practices, and comply with environmental protection regulations to avoid pollution. Safety Assessment Guideline for On-land Oil and Gas Mining This regulation provides principles and procedures for safety assessment of on-land oil and gas mining activities. According to the guideline, safety assessments should be conducted for the main risk factors, equipment and facilities, and the safety management system for the mining project. These subjects should be divided into separate assessment units based on risk factors, positions of equipment and processes of oil and gas mining activities. Environmental Impact Assessment Procedure for Offshore Oil Mining Projects The regulation was promulgated by the State Oceanic Administration (SOA) of China in 2002. According to the regulation, all offshore oil mining project practitioners should select institutions or enterprises that have environmental impact assessment certificates to conduct assessments of projects. The offshore oil mining project practitioners should submit the environmental impact assessment reports to SOA as well as the parent company that is in charge of the project (China National Offshore Oil Corporation, China National Petroleum Corporation or China Petrochemical Corporation). Environmental Protection Management on Offshore Petroleum Exploration and Development The regulation was promulgated by the State Council in 1983. The four main points of the regulation are: (1) Stationary and mobile platforms should have oil and water separation equipment, oil-polluted water treatment equipment, oil discharge monitoring and control devices. (2) The oil-polluted water of stationary and mobile platforms should not be directly discharged or discharged after dilution. The oil content of the oil-polluted water discharged after treatment must meet relevant national standards for discharging oil-polluted water. (3) In testing oil on the sea, oil and gas shall be fully burned in combustion devices. (4) The use of oil-eliminating chemical agents shall be controlled. When oil pollution accidents occur, measures for recovery shall be adopted. For the small amount of oil that is actually beyond recovery, it is permitted to use a small amount of oil-eliminating chemical agents.

Industry Assistance

The level of industry assistance is low and the trend of industry assistance is steady. There are no specific tariffs for this industry.

There are no specific tariffs for the Oil and Gas Oil and Gas Drilling Support Services industry in China. There is also no direct assistance from the central government. Assistance exists from local governments in which oil and gas fields are located. They may provide preferential policies such as bank loans to the drilling support service companies. They also encourage the oil and gas drilling companies to separate their drilling support service businesses and form specialized service companies. This can improve the work efficiency of both types of companies.



Key Statistics

Industry Data

Revenue IVA Establish-

ments Enterprises Employ-

ment Exports Imports Wages

Total Assets

(US Million Dollars)

2003 6,348.6 1,703.4 21 11 243,468 99.2 287.9 806.3 9,636

2004 13,784.5 4,362.0 65 23 485,799 155.2 294.2 2,336.7 22,517

2005 15,156.7 3,913.2 61 27 386,965 238.7 315.0 2,179.9 21,552

2006 18,320.5 5,610.2 68 29 447,403 339.6 328.3 2,453.8 25,882

2007 21,083.5 6,764.4 73 32 382,448 421.7 337.3 2,728.8 30,078

2008 29,939.9 9,730.5 175 76 495,156 521.8 363.0 3,793.2 41,039

2009 28,609.2 9,355.2 190 82 425,337 480.4 328.7 4,861.2 42,483

2010 28,783.4 9,441.0 191 83 411,034 478.2 329.4 5,283.9 43,684

2011 32,005.9 10,007.5 195 84 406,924 518.8 340.2 5,606.4 45,530

2012 34,918.4 11,662.8 204 89 390,240 576.9 357.9 6,038.1 48,034

2013 37,851.6 12,604.6 213 93 375,021 638.6 375.1 6,490.9 50,484

2014 40,917.6 13,573.0 222 97 361,145 705.1 391.9 6,951.8 52,857

2015 44,027.3 14,417.0 231 101 348,505 776.3 408.0 7,396.7 55,130

2016 47,285.3 15,256.9 240 104 337,701 849.2 423.9 7,840.5 57,335

2017 50,500.7 16,113.7 248 108 328,246 923.1 439.2 8,263.9 59,456

Annual Change

Revenue (%)

IVA (%)

Establish-ments

(%) Enterprises

(%)

Employ-ment (%)

Exports (%)

Imports (%)

Wages (%)

Assets (%)

2004 117.1 156.1 209.5 109.1 99.5 56.5 2.2 189.8 133.7

2005 10.0 -10.3 -6.2 17.4 -20.3 53.8 7.1 -6.7 -4.3

2006 20.9 43.4 11.5 7.4 15.6 42.3 4.2 12.6 20.1

2007 15.1 20.6 7.4 10.3 -14.5 24.2 2.7 11.2 16.2

2008 42.0 43.8 139.7 137.5 29.5 23.7 7.6 39.0 36.4

2009 -4.4 -3.9 8.6 7.9 -14.1 -7.9 -9.4 28.2 3.5

2010 0.6 0.9 0.5 1.2 -3.4 -0.5 0.2 8.7 2.8

2011 11.2 6.0 2.1 1.2 -1.0 8.5 3.3 6.1 4.2

2012 9.1 16.5 4.6 6.0 -4.1 11.2 5.2 7.7 5.5

2013 8.4 8.1 4.4 4.5 -3.9 10.7 4.8 7.5 5.1

2014 8.1 7.7 4.2 4.3 -3.7 10.4 4.5 7.1 4.7

2015 7.6 6.2 4.1 4.1 -3.5 10.1 4.1 6.4 4.3

2016 7.4 5.8 3.9 3.0 -3.1 9.4 3.9 6.0 4.0

2017 6.8 5.6 3.3 3.8 -2.8 8.7 3.6 5.4 3.7


Key Ratios

IVA/revenue (%)

Imports/ demand

(%)

Exports/ revenue

(%)

Revenue per employee

($'000)

Wages/ revenue

(%) Employees

per est.

Average wage

($)

2003 26.8 4.4 1.6 26.1 12.7 11,594 3,311.7

2004 31.6 2.1 1.1 28.4 17.0 7,474 4,810.0

2005 25.8 2.1 1.6 39.2 14.4 6,344 5,633.3

2006 30.6 1.8 1.9 41.0 13.4 6,579 5,484.5

2007 32.1 1.6 2.0 55.1 12.9 5,239 7,135.1

2008 32.5 1.2 1.7 60.5 12.7 2,829 7,660.6

2009 32.7 1.2 1.7 67.3 17.0 2,239 11,429.1

2010 32.8 1.2 1.7 70.0 18.4 2,152 12,855.1

2011 31.3 1.1 1.6 78.7 17.5 2,087 13,777.5

2012 33.4 1.0 1.7 89.5 17.3 1,913 15,472.8

2013 33.3 1.0 1.7 100.9 17.1 1,761 17,308.1

2014 33.2 1.0 1.7 113.3 17.0 1,627 19,249.3

2015 32.7 0.9 1.8 126.3 16.8 1,509 21,224.1

2016 32.3 0.9 1.8 140.0 16.6 1,407 23,217.3

2017 31.9 0.9 1.8 153.9 16.4 1,324 25,175.9

Figures are inflation-adjusted 2012 dollars

NOTE: UNLESS SPECIFIED, AN ASTERISK (*) ASSOCIATED WITH A NUMBER IN A TABLE INDICATES AN IBISWORLD ESTIMATE AND

REFERENCES TO DOLLARS ARE TO US DOLLARS.


Jargon

CLUSTER DRILLING Drilling several directional oil wells from the same point to save costs and land. DIRECTIONAL DRILLING The practice of drilling non-vertical wells, involving intentional deviation of a wellbore from the vertical. HORIZONTAL DRILLING Drilling horizontal wellbores, including a selection of appropriate down-hole motors and survey equipment, drill string design, and use of appropriate bits and rig equipment. JACK-UP DRILLING PLATFORM A type of mobile offshore oil and gas drilling platform that is able to stand still on the sea floor, resting on a number of supporting legs. The most popular design uses three legs. MULTIPHASE METER A device that can register individual fluid flow rates of oil and gas when more than one fluid is flowing through a pipeline. SEMI-SUBMERSIBLE DRILLING PLATFORM A seagoing, self-propelled barge that rides at anchor, stands on partially submerged vertical legs on submerged pontoons, and serves as living quarters and a base for operations in offshore drilling. WELL CEMENTING The grouting of oil wells with hydraulic cement that has a slow setting rate under the high temperatures obtained in oil wells. WELL LOGGING The technique of analyzing and recording the character of a formation penetrated by a drill hole in petroleum exploration and exploitation work.


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