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Honghua Wins Orders For Electric Drive Coiled Tubing And Launches Cutting-edge Rapid Tripping System

(Hong Kong, February 1, 2021) Honghua Group Limited (Stock Code: 196.HK, “Honghua” or the “Company”), a leading onshore oil rig supplier is pleased to announce that the Company has recently successfully developed the first electric drive coiled tubing in China and the first "one-key linkage" automated machine tool system in China, named Rapid Tripping System (RTS^TM). In addition, Honghua has recently signed an order for two electric drive coiled tubing operating machines, realizing achievements in both scientific research and commercialization.

Recently, based on the successful promotion of electric fracturing complete sets of equipment and the R&D advantages of motors and electronic control systems, and adhering to the design concept of "fully electric drive, intelligent fracturing", Honghua independently developed the first set of electric drive coiled tubing and successfully completed the industrial tests in January 2021. Right after the tests, Honghua landed an order for two electric drive coiled tubing operating machines, which were expected to be used in shale gas development in Sichuan and Chongqing. Electric drive coiled tubing operating machine is another crucial part of Honghua's fully electric fracturing equipment. Focusing on electric fracturing pumps, Honghua has now established complete sets of electric fracturing equipment, which have been successfully applied to multiple well sites in Sichuan and Chongqing.

Coiled tubing can be widely used in multiple oil and gas field operations, including drilling, completion, logging, workover and fracturing. It is also known as the "universal operating machine". Honghua’s electric drive coiled tubing is innovative and competitive in three aspects: performance and efficiency, automation and synchronized control. The main drive of the equipment is now electric – this is disruptive as the industry relied on diesel engine and hydraulic motor drive. A substantial improvement in performance and efficiency has been realized. The operating cabins adopt digital control and display systems to improve automation. Backed by smart algorithm, the operators are able to conduct high-precision synchronous control of the injection head. Moreover, the electric drive coiled tubing also reduces environmental pollution caused by hydraulic pressure and noise. It also adopts a unique organic combination of semi-trailers and skids to improve the adaptability of the operating machine to domestic mountainous and hilly areas. Such R&D achievements have solved a number of application problems of conventional coiled tubing. The swift leap forward from R&D to purchase order further proves the commercialization ability of Honghua – this is also an inspiring recognition from the market.

According to Spears & Associates, a leading oilfield consulting service provider, the market size of global coiled tubing services has exceeded USD5 billion in 2019. In recent years, with the continuous improvement of the geological understanding of shale oil and gas in North America and the continuous improvement of horizontal well and fracturing technology, coiled tubing technology has played a pivotal role in accelerating the development of unconventional oil and gas resources. In September 2016, the National Development and Reform Commission, the Ministry of Finance, the Ministry of Land and Resources and the National Energy Administration of China jointly issued "Shale Gas Development Plan (2016-2020)", striving to achieve an annual output of 80 billion to 100 billion cubic meters by 2030. Looking ahead, China’s annual natural gas output is expected to reach 260 billion cubic meters in 2035, with unconventional gas output accounting for more than 44%, entering the real unconventional gas era. Sichuan and Chongqing are rich in natural gas resources. With the large-scale development of shale gas and conventional sour natural gas, coiled tubing operation technology, which is a key technology for horizontal well stimulation and transformation operations, is expected to usher in a new period of development opportunities. As the requirements for cost reduction, efficiency enhancement and green development continue to increase, intelligent electric drive equipment will become the mainstay of China’s unconventional oil and gas development equipment due to its high degree of automation, outstanding low-speed stability, low noise output and eco-friendly characteristics.

At the same time, Honghua successfully developed and launched Rapid Tripping System ("RTS"), which is composed of a centralized control Zone Management System ("ZMS"). RTS is composed of two parts, and the efficient parallel linkage of the participating equipment is realized through process-based automatic operation, which is safer. It optimizes the system integration, operation process, and tripping speed of the existing equipment. In an experiment on a 5,000-meter rig, the system successfully increased the tripping speed of the rig by 35% and reduced the number of operators by 50%. It is expected that the system can meet the needs of the market for renewal and iteration of stock rigs. The successful research and development of RTS is another milestone for Honghua in the process of improving drilling automation and informatization.