Media Focus: Hengtai Epp Strategic Transformation to Deal with the Development of the Next Ten Years

In the eyes of many analysts and institutional investors, Hengtai Aipu (300157) is no longer an oil service company with geophysical and geological software as its main business. Through the endogenous and extension of the way to achieve transformation, Hengtai Epp gradually transformed, with considerable international market competitiveness of a comprehensive integrated oil service platform has laid a solid foundation.

On the evening of October 15, Hengtai Aipu, which had been suspended for several months, announced that the company planned to purchase 100 percent of the shares of Apex Reservoir and 100 percent of Xinjiang Cenozoic by issuing shares and paying cash. Energy Prospecting Technology USA Inc. (EPT) planned to purchase 100 percent of the shares of Apex in the United States through cash and raise matching funds not exceeding 280 million yuan. The plan shows that the above-mentioned asset consideration is 845 million yuan, of which the cash consideration is 433 million yuan, the equity consideration is 412 million yuan, and 30,586,479 shares are issued.

Hengtai Aipu said that while insisting on developing advantageous businesses, the company has initially completed the layout of the four major business sectors through multiple industrial mergers and acquisitions. The proposed acquisition of the new generation is a professional oil and gas field engineering and technical services company, the United States Apis and Apis reservoir is the oil and gas exploration and development software sales and technical services industry leaders.

Upon completion of the transaction, it will help to enhance the overall size of the listed company and enhance its profitability. At the same time, the company's market expansion ability, anti-risk ability, sustainable development ability and comprehensive competitiveness will also be further enhanced, which is conducive to fundamentally protecting the interests of listed companies and their shareholders, especially small and medium shareholders.

China's oil service industry is laying the foundation for the next decade of development

In recent years, on the basis of Hengtai Aipu's original main business of geophysics and geological software and technical services, it has actively carried out strategic layout and innovation. After acquiring Langfang New Saipu, Boda Ruiheng, West Oil Union, Zhongying Anxin, OMEK and other companies in turn, it has formed comprehensive oil service platforms such as geophysical exploration, reservoir service, drilling, cementing, completion, surface engineering and digital oil fields, and has begun to become an international oil service giants. This transformation of Hengtai Aipu is forward-looking and exemplary for the oil service industry, which is experiencing the pains of China's development.

The international and domestic oil exploration and development technology service market, including the geophysical and geological (G & G) business market, has continued to grow rapidly since the mid to late 1990 s as the international crude oil price has risen from US $10 per barrel to more than US $100 per barrel. This round of high-speed oil service market growth has lasted for nearly 15 years until 2010.

Thanks to the vigorous development of the international and domestic oil service market, from 2007 to 2010 (before listing), Hengtai Aipu, like other companies in the industry, achieved rapid growth. Hengtai Aipu's operating income rapidly increased from nearly 30 million yuan to 0.2 billion yuan. From 2007 to 2010, the company's gross margin reached 64%, 74%, 72% and 66%, respectively. At this stage of development, the financial data of another listed company of the same type also provides evidence for the rapid development of the industry. From 2008 to 2010, the gross profit margin of the listed company was at a high level of 80.83 per cent, 81.52 per cent and 80.84 per cent, respectively.

Every industry has a development cycle. For the oil service industry, the development of geophysical exploration and reservoir software is also the same. In 2012 and 2013, as in the entire industry cycle, Hengtai Aipu's traditional geophysical and geological software and technical services business entered an adjustment period, with gross profit margins falling to 51% and 42%. The gross profit margin of another oil service listed company's main business "oil exploration technology service" has also declined significantly from more than 80% in previous years.

At present, global oil prices are ups and downs, and the oil industry is going through the most important adjustment period in more than a decade. (whether this conclusion has sufficient arguments and whether it has been recognized by the industry. The results of this round of the game will create a solid foundation for the stable development of oil service enterprises for more than ten years in the future. This game (adjustment) is based on the division of the dominant power of world oil interests. This oil price adjustment has increased the operating pressure of oil service companies. Therefore, the development expectations of oil service industry enterprises need to be adjusted in time. China's oil service industry enterprises must make preparations for the winter. Each oil service company must compete with its own business structure, business layout and market composition to make full preparations for future development.

In this regard, Hengtai Aipu related people said that for China's oil service industry, the future development prospects are still bright. First of all, under the national energy strategy, the development strategy of new oil blocks is growing rapidly, and the exploration and development of unconventional oil and gas is speeding up; on the other hand, some enterprises in the non oil and gas industry are making every effort to expand their energy business, and their service demand for oil service enterprises is very urgent. These will push China's oil service industry to end the adjustment as soon as possible.

Strategic transformation layout of the four major sectors

No matter from the information publicly disclosed by Hengtai Aipu or the analyst research report, the decrease in the gross profit margin of Hengtai Aipu's traditional geophysical and geological software and technical service business is partly due to the innovative layout of Hengtai Aipu's use of its geophysical and geological software technology and services to open up a new main business space. And this part of the strategic investment will open up a new era of development for Hengtai Aipu. The establishment of the functions of the oil service company should be relatively perfect and complementary. Just like a large hospital, first of all, there must be doctors at the expert level to see the patient's plan, and only then can there be money-making projects such as injections, medicine, surgery, etc. The core competitiveness of the hospital is to have experts, who cannot earn money by relying on expert numbers, but who cannot earn big money without seeing a doctor in front of experts.

Before the listing, the management of Hengtai Aipu clearly realized that the geophysical and geological software and technical service business is a very important business in the upstream exploration and development field of the petroleum industry to provide support for large-scale exploration and development investment decisions and strategies. However, within the international and domestic comprehensive oil service companies, its income can be said to be insignificant compared with the engineering technology and equipment manufacturing industry. According to industry practice, the upstream exploration sector of the oil industry can only account for 6%-10% of the total oilfield investment.

In the context of this industry development, the fate of international high-quality geophysical and geological companies is usually acquired by engineering oil service companies with much larger performance. For example, CGG Veritas acquired Fugro's geophysical division in 2013, was acquired by Schlumberger in WesternGeco, and was acquired by Halliburton in Landmark.

At the same time, another practice in the oil service industry is that in the oil field exploration and development industry upstream of the oil industry, the main investment expenditure and cost expenditure occurs in the oil field development and production stage, while the main areas of expenditure are engineering and equipment. Therefore, for China's oil service industry, in the next 10 years of development period, master the engineering technology and equipment manufacturing industry chain, will be able to grasp the market space and development initiative in this period.

Based on the judgment of the development prospects of the domestic and international oil service market, Hengtai Aipu's management timely adjusted and finally established the company's new development strategy, that is, "to build an international comprehensive oil service company as the goal, implement 3334 system engineering, and realize the company's sustained and rapid development."

Hengtai Aipu's "3334" system engineering is: closely centering on the three strategies of "thickening, lengthening and widening", using the three markets of "domestic, international and capital", and aiming at developing and growing into an international modern oil service company, establish and improve the R & D, sales of key products such as oil and gas core equipment, equipment, instruments and meters, and the ability to provide corresponding engineering operation technical services globally, expand and adjust its main business from the traditional geophysical and geological software and technical services business to include geophysical and geological software and technical services, oilfield equipment and instrument manufacturing, oilfield engineering and technical services, and oilfield production increase services. Comprehensive oil and gas field services divided into four main business segments.

After a series of mergers and acquisitions, Hengtai Aipu's main business after listing has fully expanded the traditional business scope before listing. It is through this strategic transformation that constant

Taiepp has no longer declined due to the contraction of traditional geophysical and geological business performance caused by market fluctuations, and has successfully achieved sustained growth in its main business.