Honghua Seeks China Shale Gas Asset, Expansion With Baker Hughes

Honghua Group Ltd. (196), China’s biggest oil-drilling equipment exporter, is seeking to expand exploration services with U.S. partner Baker Hughes Inc. (BHI) and acquire a shale gas asset in China, Chairman Zhang Mi said.

“We’ll become a minority shareholder of a high-quality shale gas parcel,” Zhang said in an interview in Hong Kong yesterday. The parcel won’t be among those auctioned by the Chinese government in the past two years because “those blocks are not high-quality shale gas blocks,” he said.

Honghua had teamed up with Houston-based Baker Hughes in December to study shale gas prospects, provide oilfield services and conduct research in China. Last month, Chengdu, Sichuan- province based Honghua agreed to jointly explore shale gas opportunities with Shenhua Group, whose unit won blocks in a nationwide shale gas auction that ended in October.

“We won’t rule out the possibility of forming a joint venture with Baker Hughes or having the company as a strategic investor,” Zhang said. The same also applies to Shenhua, China’s biggest coal producer, he said.

Honghua’s “sufficient bank credit” ensures the company won’t have to raise funds, Zhang said. The company’s full-year profit rose 80 percent to 541 million yuan ($87 million), aided by sales to overseas customers. Revenue gained 45 percent to 5 billion yuan from a year ago.

“I’m quite confident our sales will break the 10 billion yuan mark this year, based on contracts we have signed,” Zhang said.

Honghua’s Hong Kong-traded shares have more than tripled in the past year, compared with a gain of 6.6 percent in the city’s benchmark Hang Seng Index. The stock gained as much as 3.8 percent to HK$4.06 and traded at HK$3.95 as of 10:55 a.m. local time.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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