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Honghua group joint Jilin University R & D Chinese first million meters of Continental Scientific Drilling

In October 15, 2013, the world''''s largest land rig manufacturer Honghua Group Limited company announced that, by the Jilin University is responsible for the United Honghua group and common development of the Chinese first million meters of continental scientific drilling rig "special crust," the official from Sichuan Province Guanghan City Kai Yun, transported to the Heilongjiang Province Anda City utive "Songliao Basin in Cretaceous Continental Scientific Drilling", "deep Continental Scienti

Honghua Group Limited (HKEx stock code: HK0196, hereinafter called “Honghua Group”) – the world’s largest manufacturer of land drilling rig – announced on November 13, 2014 that it has committed to invest USD 150 million in Sino-Mex Energy Fund and becomes a limited partner of the Fund. The Sino-Mex Energy Fund will mainly invest in projects in energy infrastructural facilities, exploration and production of oil and natural gas area.


China and Mexico government pay high attention to Sino-Mex Energy Fund. On the same day, Chinese President Xi Jinping and his Mexican counterpart Enrique Pena Nieto had meetings, China and Mexico announced “Outline of Promoting Comprehensive Strategic Partnership between People’s Republic of China and The United States of Mexico”. Article Eleven defines that “Both sides stress taking following actions to promote mutual investment”. “(4) Promote investment in energy sector. Make good use of energy fund to support investment and financing cooperation on infrastructural facilities projects between Chinese enterprises and PEMEX”.


One of the limited partners in the Sino-Mex Energy Fund, P.M.I. Holdings B.V. is a subsidiary of PEMEX. The latter is a holding company which manages petroleum, natural gas and basic petrochemical interests of the Mexican government, and also the second largest industrial enterprise in Latin America. P.M.I. Holdings B.V. will subscribe to the Fund and will partner with Chinese enterprises through the Fund. The Fund is at once a result of Mexico’s energy reform and an important showcase of Sino-Mexican collaboration in the energy sector.


Energy reform and related investments in Mexico have been put in place by the Mexican government through the announcement of “National Energy Strategy 2014-2028)” and “2014-2018 Planning of National Infrastructural Facilities”. Energy reform will not only become a powerful economic growth point but will bring significant investment opportunities for Mexican and foreign enterprises. According to data of Energy Inion Administration of the United States, the Gulf of Mexico is the largest petroleum belt yet to be developed next to the Arctic Circle. In the future Mexico looks set to be a top five petroleum producing nation, up from her current position of ninth place.


After the reform, Mexican energy sectors shall officially open to private and foreign investment, involving electric power and renewable resource fields, and oil and gas field exploration, production, refining, transportation and storage etc. The representatives of many Mexico enterprises association had predicted, energy reform is expected to attract additional USD 20 billion foreign capital a year to enter the sector.


Honghua Group’s participation in the Sino-Mex Energy Fund enables the company to have an opportunity to procure orders for land drilling rigs and offshore platforms from Mexico and relevant businesses. It will also facilitate the Group’s product layout and sales in the Mexican and North American markets. As a limited partner of the Fund, Honghua Group will have positive opportunities to obtain orders from PEMEX for land-based drilling machines and modular drilling machines purchased from the Fund, as well as land and marine equipment such as offshore drilling platform, offshore drilling package and marine-support ships.


About Honghua Group


Honghua Group is the world’s largest manufacturer of land-based drilling equipment, and mainly manufactures high-end and large-scale land boring drills as well as accessories and spare parts. By virtue of its powerful research and development capabilities, quality production equipment and mature international sales network, about 80% of its products are exported to North America, South America, Middle East, Russia, India and Africa etc. In 2014 Honghua received orders for offshore platform and began production at its marine equipment production base in Qidong, Jiangsu province. The Group will leverage on its existing foundation for land-based drilling equipment and implement diversified strategy. Its aim is to become a conglomerate for equipment manufacture, oil and gas resources development (in particular in the areas of non-conventional oil and gas) and engineering services covering both land and sea, with interactive development.

What is Honghua doing when oil prices collapse?


"The plunge of oil prices has no effect on the continual R&D efforts of Honghua." A team director of Honghua’s R&D department said. "As you can see, Honghua’s R&D team is always so busy. If you came here two years ago, you would find that we were as busy as now."


The market downturn does not affect Honghua’s dedication on research and development. In recent years, Honghua was constantly enhancing its investment and capabilities in R&D. The Group has developed a certain number of revolutionary innovation and world class technologies, such as Honghai Crane. Honghua believes the innovation mechanism and innovative breakthroughs as the core value of the Company over the years.


"We will persist in R&D even though there are difficulties ahead” Zhang Mi, Chairman of the Group said firmly.


At the end of 2014, Honghua held a celebration ceremony for project TIGER in Guanghan, Sichuan Province. Senior management, mid-level cadres and project TIGER’s team members gathered to celebrate the successful installation and naming of the “TIGER” drilling package.


What is the drilling package?


The core component in the field of offshore oil and gas equipment is the drilling platform, which is comprised of the main drilling equipment, supporting & auxiliary equipment, etc. The main drilling equipment is the drilling package, which is the core component with the highest technology and value and costs one-third of the total expenditure of the whole drilling platform. The drilling package is far beyond the drilling platform in terms of either technical difficulties or profit contribution.


As the core component of the drilling platform, the design and manufacturing of the drilling package has been dominated by the western companies and rare outsider get involved in. For a long time, drilling packages developed by Chinese companies have been mostly assembled on jack-up rigs with an operating water depth of less than 400 feet, while there is no room for Chinese company in the field of deep-water drilling equipment with an operating water depth of more than 1,000 feet.


What features does the Honghua drilling package have?


The “TIGER” drilling package developed by Honghua is the first deep water floating drilling package designed and manufactured in China. With a drilling depth of 30,000 feet, it has an unparalleled edge in the drillship market with an operating water depth of 3000 - 5000 feet. This drilling package is a middle-to-high end configuration in the offshore engineering equipment manufacturing sector, owns mainstream functions of the international deep water drilling packages and completely independent intellectual property rights. The “TIGER” drilling package leads China’s offshore engineering equipment field for 5-10 years and fills up at least 14 technological vacancies in the field.


It is the first time that a large number of new technologies independently developed by Honghua had been applied to offshore drilling platform, especially to floating drilling platform, in China. For example, the automation system of drill pipe runs steadily and reliably, and is also capable of casing string processing, thus greatly enhancing the operating efficiency with safety. The marine riser processing system and the installation system under dock basin are well developed and optimized under the guide of the drilling technology. They are both highly automated and easy to operate. The marine riser crane, which is independently designed and manufactured by Honghua, has achieved the world’s first-class level in terms of either practicality or reliability.


The core equipment of the entire drilling package developed by Honghua has obtained the design certification of the ABS Classification Society. As a technology leader, Honghua took into account of stringent environmental requirements at the very beginning stage of design. The waste water and waste oil in the entire drilling system, including those in the rig, in the dock basin and the solids control system, can be completely collected, processed and recycled, so the drilling system achieving a real sense of zero emissions.


Moreover, Honghua also offers a complete system solution for the drilling package, including the final assembly and the overall debugging. In view of the debugging, it will cost the client over US$10 million if foreign companies are asked to provide the service. But the cost of whole drilling package is halved by Honghua, and its overall performance can completely reach the same level of foreign products. It is the higher cost-to-performance offshore drilling system.


"Honghua does not simply manufacture ships. We are focusing on some specialized equipment of drilling rigs by making good use of the company’s drilling package," said Zhang Mi, Chairman of Honghua.


The “TIGER” drilling package is outstanding and breaks the ice in the global offshore drilling platform and core component market dominated by European and American companies.


Honghua has picked a pearl off the crown of the global offshore oil and gas equipment field.


What significance does a proprietary drilling package have?


It is very common that the delivery of offshore drilling platforms or rigs is always postponed. In addition to the delay of basic design, the core equipment of rig fail to deliver in time should be another significant factor of delay delivery of drilling platform. The successful installation of “TIGER” drilling package, which has completely independent intellectual property rights, reflects that Honghua is capable of shortening the manufacturing cycle of the core equipment.


Another tool to shorten the manufacturing cycle of the core equipment is Honghai Crane, .The huge crane, at a height of 150 meters with a lifting capacity up to 22,000 metric tons, will be completed and put into fully operation in early 2015.


Taking into account of TIGER drillship, Honghua can simultaneously conduct the hull construction and the manufacture of the drilling package system with Honghai Crane. When the hull is being assembled, the drilling package is also assembled and debugged at the Honghua’s wharf simultaneously. When the drillship undocks or gets into the dock basin, the drilling package completes its debugging at a specific site in the wharf. Then, the entire drilling package is lifted by the Honghai Crane onto a barge and then is transported to the specified wharf, for further installation, connection with electricity and liquid injection. The turnkey project of the drilling package can be quickly completed in this way. The whole delivery cycle can be shortened by more than 4 months under this scenario.


How to be both fast and cost-saving? Onshore manufacturing of offshore equipment.


To this question, Honghua is confident to reply to the market.


When the heavy snow pressures pines, the pines seem quite firm and straight. Not until when the snow thaws can we know if the pines are really firm and straight.


In China, the construction of offshore drilling platform is not news any longer. There are various drilling platforms, ranging from jack-up to semi-submersible model, have been put in the seawater one after another in recent years. Lucrative profits have attracted a lot of capital into this area. The China’s coastline was full of investment speculation at the moment.


Honghua did not follow the trend blindly, The Company is committed to specialize in the research and development of offshore engineering equipment and technology since it was listed on the Hong Kong Stock Exchange in 2008. Honghua kept its steady and strong pace and gradually grasped the advanced technologies in the field while other Chinese offshore engineering companies rushed to build offshore engineering platforms designed and outsourced by foreign companies.


The sharp falls in oil prices is somehow beyond the market’s expectation. However, Honghua, which confronted with the financial crisis a few years ago, is dealing well with it. "When the market goes well, we will put efforts to capture more chances and increase our market share. When the market turns around; we will constantly enhance our core strengths and wait for opportunities ahead." This is the scenario of Honghua staff’s spirit in hard times. For Honghua, the market downturn leads the Company to put more efforts on product research and development. When the spring approaches, success is a matter of course for Honghua.


Now, TIGER drillship and the drilling system are debugging simultaneously with satisfactory progress.


On the naming ceremony of TIGER deep-water drillship on November 8, 2014, the owner of the drillship said: "The ultimate accolade should be addressed to the drilling package contractor, Honghua Group. Although Honghua has never made any drilling package before, it put huge efforts and finally reached an unparalleled efficiency and professional service level, which a number of equipment manufacturers in the world cannot reach yet. I’m really very proud of Honghua’s excellent equipment and the name engraved on the equipment. You are the future hope of the oil industry in China! "


"In every phase of the project, we have been fully recognized and highly commended by the drillship owner and partners." A TIGER project team leader said. "The agreement on the construction of TIGER III and IV has been signed. We'll do better and better in the future."

On Nov.20th, 2013,Honghua signed a contract of onshore drilling rig with NDC in value of onehundred and thirty-five million US dollars (0.135 billion US dollar) about tenbillion and sixty million Hongkong dollars. The contract is another cooperationfruit between NDC and Honghua after a three- hundred- million US dollarscontract, about twenty three hundred million thirty five million US dollarscontract of artificial island rig before. NDC is one of the biggest oil and gasdrilling service company in Middle East, providing hi-quality drilling andworkoverservice . The NDC rig made by Honghua can satisfy the harsh workingenvironment in Middle East. Since December of 2011, Honghua has signed contractwith NDC for a value of more than five hundred million US dollars, about 3.925 billionHongkong dollars. According to the new contract, Honghua will manufacture forNDC two packages 9000 meters 3000hp rig for artificial island drilling whichwill be delivered in the year 2015. Honghua and NDChave established long term and deep cooperation relationship, which will bringbig moment for Honghua to develop Middle East market. The contract with NDC isa demonstration of hi-quality and cost effectiveness and a proof ofacknowledgement of high-end customer to Honghua product. The contract with NDCwill also improve Honghua’s brand reputation and competition capabilitygloably. All the time, Honghua emphasizes the research and development ofproduct, and long term mutual beneficial relationship with customer. In thefuture, Honghua will improve its competition ability further, keep theprinciple of customer-oriented, and invent bigger investment return for ourshareholders.”  Commented by Mr.Zhangmi, Chairman of Honghua Group.  





Nov.11th to 14th,2013, the Sixteenth Abu Dhabi International Petroleum Equipment Conference(ADIPEC) was held in the capital of U.A.E, Abu Dhabi which attracted hundredsof exhibitors, medium around the world. The subsidiary of Honghua Group,Honghua Golden Coast Equipment FZE participated the exhibition.


Honghua GoldenCoast Equipment FZE showed some innovated product of Honghua which includes Honghuapatent design top drive, quintuple direct drive mud pump unit, offshoreplatform racking system and the model of 2000 HP rig for National DrillingCompany (“NDC”) artificial island drilling. These new product attracted theinterest of many exhibitors and visitors.


During theExhibition, Honghua Golden Coast Equipment FZE had a face to face communicationwith old and new customers, which promoted the understanding of each other anddeepened the cooperation relationship.

Also, during theExhibition, there arise many new rig manufacturers. Under the background ofweak global economy, energy industry made a good result and became of thepillar of global economy, which bring incentive to new players to join thecompetition.  


The 2013 SixteenthAbu Dhabi International Petroleum Equipment Conference (ADIPEC) has beencompleted. New competition from domestic and abroad is spurring Hong Hua toaccelerate and improve quality to further make a bigger market share.


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