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Honghua Group's Revenue Increases Rapidly; Hits Record High Since 2016

Aug 29, 2019，Honghua Group Limited announced unaudited consolidated interim results for the six months ending on 30 June 2019 (the period).

During the period, Honghua's revenue increased rapidly and hit a record high. Specifically, revenue increased to 2,048.5 million from 1,146.7 million with a 78.6% growth rate. Profit attributable to shareholders increased from negative 118.4 million to 60.8 million. The growth of Honghua's revenue from continuing operations is mainly attributed to the expansion of oil and gas exploration projects and a large quantity of orders received. Revenue grew tremendously due to the expansion of projects in the shale gas field, as well as strong contribution from China, totaling 38% for the first time.

New orders for shale gas related equipment and services reached over RMB 600 million; oil services qualifications and fracturing operations made significant progress

Honghua successfully sold three sets of electric fracturing pumps. The electric sand mixer has already finished industrial trails and is currently utilized in well sites. The smart control center has already finished upgrades to its second version. Additionally, due to its high quality, the flexible liquid tank, which was previously offered as complementary equipment to shale gas electric fracturing pumps, is now sold as standard drilling equipment and received a large quantity of orders. Sales of other parts, including the top drive, also grew rapidly, driven by the shale gas market expansion.

In addition, Honghua successfully finished its first integrated drilling-fracturing-oil testing engineering project during the period in the Changning region. Based on Honghua's outstanding performance, Honghua won new drilling engineering bids, worth over RMB 210 million, in the Changning region. This project currently has three platforms in operation, and work load is expected to increase in the future. In Guizhou, Honghua won a bid for a national level shale gas development project after completing previous projects. Meanwhile, in Qinghai, Honghua earned a directional drilling project, which marks the first time Honghua's directional drilling team will undertake an independent project. In 2019H1, Honghua's oil service team also cooperated with CNPC Xibu Drilling Engineering Company Limited on an integrated project and won nine prizes for its accomplishments. Moreover, Honghua received an oil service qualification from Southwestern Oil and Gas Field Company and networking permits for four drilling rigs, which provides a stepping stone for its oil and gas engineering services. After receiving the qualification, Honghua's oil service can directly sign drilling and completion projects with Southwestern Oil and Gas Field.

With the rapid development of shale gas in China, the market has shown an irreversible trend of motorization. Honghua, as the industry leader in electric fracturing pumps and services, started to design its shale gas electric fracturing system in 2009, officially launched in 2012, and began earning sales in 2017. At this point, the electric fracturing pumps have been tested by the market and customers for four years. During the period, Honghua launched its fully electric fracturing equipment in the field for the first time in the Sichuan shale gas development region, which broke multiple records for ultra-deep and high-pressure shale gas wells. In China, Honghua completed more than 1,100 stages of fracturing operations, a threefold increase compared to 2018H1. Meanwhile, Honghua's electric fracturing system completed a record of eight fracturing operations in one day in the Xinjiang Mahu shale gas region. In the Sichuan Changning and Weiyuan shale gas development core regions, Honghua broke the record of five completed fracturing operations in one day.

Outlook

In 2019, Honghua will keep its top position in shale gas equipment, oil services engineering and electric fracturing systems. Honghua will also continue to improve service quality and increase its market share. Moreover, Honghua will increase investment in technology R&D and upgrade products and services. Benefiting from the recovery of oil and service industry and the rapid growth of domestic shale gas development, Honghua's continuous R&D investment in the shale gas cutting-edge development will surely bring long-term profit to the group.

Currently, Honghua has already made meaningful progress in full-automation, intelligent equipment, intelligent production, unconventional oil and gas equipment, downhole tools and marine mineral resources development, among others. Intelligent drilling rig projects will continue in development, especially in the fields of new rig structure and operating modes, with a goal of achieving automation, intelligence and remote operation. Additionally, the intelligent trajectory guidance system with independent intellectual property is doing well in its testing stages. Finally, as part of the natural gas hydrate research program, the first worldwide seabed surface hydration mining robot also finished its in-house trials and is ready for the next stage.

Lastly, Honghua established a remote information center, which could remotely monitor and provide immediate professional support, diagnose malfunctions, and manage equipment for drilling and fracturing platforms. Honghua also established Hanzheng Testing Technology Limited (Hanzheng Testing) to support clients with laboratory testing, engineering service testing, and intelligent testing services. Specifically, the full life cycle testing system for oil drilling rigs could monitor, predict and diagnose drilling machines' operation status and performance and provide immediate advice on operating efficiency and machine design, which is expected to improve the safety and economy of an oil rig throughout its full life cycle.