China’s advantage in a low oil price environmentDecember 7, 2016
TOGY talks to Xia Tongmin, Kerui Petroleum’s deputy chairman, about the group’s many businesses that are responsible for providing products and services to the hydrocarbons industry, the group’s e-commerce platform and the low costs of Chinese manufacturers. Kerui Petroleum is engaged in various businesses covering the entire industrial chain, including oil and gas exploration, drilling and extraction, stimulation, collection and transport, treatment and oilfield ground projects.
Can you discuss how the oil price has affected project development and competitiveness in the oilfield services sector?
After the oil price crash in 2014, the number of projects suddenly dropped. In 2016, we saw a bit of a rebound in the number of projects, which was connected to the slow climb of the oil price. Our key developments are in the USA, Middle East, West Asia, Central Asia, Africa and Russia. Right now, the competition is very fierce and it is a little tricky to keep our strategic planning on the radar. However, compared to 2015, we are doing much better in 2016 and our confidence is on the rise for 2017.
What are some of the factors that make Chinese companies competitive in oilfield services internationally?
Our advantage became very obvious after 2014. The reason for this was that, after the oil price crash, all of the oil companies started cutting their budgets. They wanted to invest less and have more output and they wanted companies that could deliver this work to them.
When the oil price is high, companies tend to purchase European- or American-made equipment and services, which are very high-end and expensive. When the oil price is low, companies need better value-for-money products, like what Kerui Petroleum and the Chinese companies provide. The Chinese technology for production stimulation is better than others. You can see that from the relation between oil production volumes and the difficulty of accessing and recovering oil in China.
Which are your fastest growing businesses at the moment?
The well-being and good fortune of companies like Kerui Petroleum is closely connected to the oil price. We should stop dreaming for the oil price to go above USD 80 and accept that the current prices are the new norm. We must therefore find new ways of doing business in this environment. We just established Erui International, the e-commerce platform on July 1, 2016, and from here we do internet sales online and offline.
We have a platform of trading and rental service for idle equipment in global oil and gas industry, trying to minimise the capital investment for our clients while providing financing services for them. That is our new business model that we have engaged in under this new context. In short, our business model is a traditional sales model plus the website model and we are seeing positive results from this.
The low price environment has given an advantage to Chinese companies internationally and you mentioned some of the solutions you came up with in order to increase your business in this lower-price environment. Would you please highlight some of the solutions that you introduced?
We must admit that this new oil price is the new normal, which is why we must do our best to adapt to this environment. Besides the traditional business models, we have engaged in internet sales, both online and offline, which has given us this new internet plus business model. Erui International is a wholly owned subsidiary of Kerui Petroleum, which is the intensive embodiment of the “Industry + Internet” strategy of Kerui Petroleum. Relying on the powerful procurement and marketing network of Kerui Petroleum, with the help of the technology advantages of internet platforms, Erui International continuously integrates superior industrial resources and remains committed to providing customers with a convenient one-stop shopping service for industrial general equipment, spare parts, consumable, production materials, tools and other products, to create value for our customers from finance, technology, big data, brand promotion, cost saving and many other aspects.
This model has proved quite practical and has also generated excellent financial results. It has allowed us to provide the clients with better-quality goods and more efficient services. Because we also provide financing services for our clients, we are basically approaching our clients with money in one hand and technology in the other.
Our clients are very sensitive to the cost of oil and they would like to incur the least expense to create the maximum amount of wealth. Because we do drilling, oil extraction and transfer, we provide one-stop services for clients that integrate underground and aboveground solutions. This way they do not have to go to several suppliers for a proposal and can minimise their costs by integrating all services in one place.
With integrated services, financing and your e-commerce platform, how do you see the outlook of Kerui Petroleum now that the price of oil has stabilised?
First of all, with the ups and downs in the price of oil in the past few years, we have cultivated our strength. With this stabilised and comparatively low oil price we have formulated a new business model in order to cope.
We say your confidence is more valuable than gold. That brings me to my second point: even after the ups and downs of the oil price, we are confident that we have adapted to the new price and have found a niche for our survival in this market. Another point of pride for the company is that, despite the recent drop in the price of oil, Kerui Petroleum did not lay off staff on a large scale. We hired some new talent and our staff numbers have increased. We believe that talent is the basis for development and Kerui Petroleum’s performance proves this.
In the future Kerui Petroleum will continue to be a key player in the oil equipment-manufacturing sector. To elaborate on the financial services that we provide for clients, we consider them our friends. Only when they prosper can we prosper. Our philosophy is to help our friends and to never leave them behind in difficult times. We are able to provide financing to our clients because we have very good relationships with the financing institutions such as banks and national funds. Together with the Chinese government’s favorable financing policy given to these initiatives, we are able to go global in a more stable manner.