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Interview

with James Ma, Chairman and President, Antonoil International, Anton Oilfield Services (Antonoil)

06.02.2012 / Energyboardroom

Mr. Ma, you were one of the founders of Anton Oilfield Services. Today, Antonoil positions itself as a “leading international oilfield technical service company, with a strong foothold in China.” Is this strategic direction consistent with the founders’ original vision for the business? What were the main difficulties you faced in getting Antonoil off the ground?

Our largest shareholder is our CEO Mr. Lin Luo, and he is truly our founder. I am a small shareholder, and am the longest-serving employee of the company. We sat down together to design the strategy for Antonoil in 2002. Mr. Luo, however, had already been involved in early stages of this business since 1999. I joined three years later and together we began to build the Antonoil of today.

We are not technically a Chinese company—we are registered in the Cayman Islands, and we are listed in Hong Kong, and our shareholders spread around the world , from North America, Europe, to Aisa and the Middle East. Our business, however, is based in China. Currently, approximately three fourths of our revenue is derived from the Chinese market, with the final quarter coming from abroad.

But our international market is getting bigger and bigger: in 2012, I estimated about one third of our revenue will come from outside of China. Right now, our organization reaches 12 countries. I believe this list will continue to get longer and longer; our strategy is to continue to promote our globalization, and by 2015, we hope to draw 50% of our revenues from foreign markets.

Prior to Antonoil, I have more than ten years of experience in China’s national drilling company, and spent some time with CNOOC and Halliburton. The latter experience, which lasted about two years, was very important in broadening my horizons—especially when I received the opportunity to travel to places like the U.S. and to meet many international managers and engineers. At Antonoil, we want to operate like a true international company: like Schlumberger or Halliburton.

This international identity is our long-term vision. We study and learn from the large MNCs and model our practices after their own. We invested a good deal of money with a consulting company to discuss our strategy, our organizational structure, etc. We wanted to fine-tune all the aspects of our business to be ready to work abroad. We asked our consultants to study how companies like Schlumberger organize their business. This consultation helped us quite a bit, and we made adjustments in response.

We have faced a slew of difficulties in growing our company, in every imaginable area: marketing, technology, investment, etc. Nothing is easy. However, looking at our 12 years of history, we are indeed very lucky. Business is going smoothly, even though there have been particularly challenging periods like the first global financial crisis, when oil prices decreased significantly. Thankfully, we went public just before the crisis, and the cash we received was very instrumental in helping us to promote expansion, in terms of equipment acquisition and market diversification. A particular challenge we have faced has come in the form of safety risk. We operate in several fairly dangerous environments: Sudan, Iraq, etc. We are now moving into Canada and the U.S., but at the beginning, we had to go to the more risky markets—there were more opportunities for us there. We have advantages in several Middle Eastern markets, for instance, because we have offers from Chinese oil companies that have invested into the region.

We have found that, if we want to get larger, then we have to invest a lot of money, procure a lot of equipment, train a lot of engineers, etc. Therefore, besides other obvious reasons, we absolutely must manage the risks of the environment, as the question of whether stability is possible in the short or the long term is tantamount to our return on investment. We are very lucky that we did not go to Libya when we had the chance!

Antonoil’s international strategy, know as your “follow-up” strategy, is mainly based on targeting the overseas fields of Chinese investors. Can this company broaden is customer base?

We have identified three steps to internationalization. The first step, as you mentioned, is what we call the “follow up” strategy. Therein, we follow Chinese NOCs that invest in foreign markets. This is easy for us to do, as we know them for over ten years and we have executed many projects for them. They know and trust our capabilities.

The second step is independent development. For instance, we went to Kazakhstan in 2008—we followed PetroChina to the market. However, after one or two years of business there, we had established an office, and had a number of full-time, local employees on site. We established a service base. It became more than a matter of ‘follow up.’ We began to communicate, arrange seminars, etc., with the national Kazakh oil company. Our second step, therefore, is to expand our client base to include other national companies, as well as private IOCs.

The third aspect of our strategy is M&A. This is a frequently used tool of the large service companies. They have merged many times, with many businesses, and got bigger and bigger. We are trying to do the same. We have already merged 7 companies here in China, and continue to look for new opportunities. We are still studying the process, and are looking to make our first international acquisition —we have asked our managers in the U.S. and Canada to be on the lookout for potentially interesting assets.

2010 marked Antonoil’s return to growth after a difficult 2009, with profits surging by 234.9% by the year’s end. Group CEO Mr. Luo Lin has called 2010 the organization’s ‘second starting up.’ To what extent were you able to maintain the upward trend in 2011?

I cannot speak for the entire company, as our figures are just now being audited and we have not made the final calculations yet. However, I can say that, as head of the international business, this division will have a significant growth this year.

Iraq is currently our major market. We have large contracts there, and two service bases. Of course, we also have a great record in our other countries as well. In Kazakhstan, we grew by 40%.

What about the Americas? Antonoil was the first to drill a horizontal shale gas well in China, with PetroChina as its client. Do you believe that you can leverage this kind of expertise as Chinese companies increasingly look into unconventionals in markets like North America?

Perhaps in the future. The well you mentioned is, after all, just one well. We have to test and practice more. Moreover, our home market is still easier for us to work in than in North America, especially in a field that is new to us. When we have gained further experience, we will definitely go outside with it.

For this well, we cooperated with a U.S. consulting company. We did so for the same reason that we recently opened a technical center in Houston: Houston and the U.S. are a world center for oil & gas technology! We sent a staff member to Houston to take charge of communication with the consulting company locally, and we conveyed the needs of the project to them and worked together—because we do not have this kind of technology on a proprietary basis.

It is part of our strategy to consistently pursue new segments of the industry. Shale gas and horizontal wells are examples of the high end in our field today. We are not very interested in participating in the more traditional segments. We do not believe we can capture much of the market that way, since there is so much domestic and MNC competition. We try to stay ahead of the curve, and capture cutting-edge segments of the market from a technological standpoint.

You mention your interest in operating like Schlumberger. And you have been in close quarters with them: in Sudan, both companies are working for a single customer on a single field. How does Antonoil navigate the challenge of competing with larger international service providers, especially outside of China?

Today, Schlumberger is 200 times our size. Nonetheless, there are certain niches where we really excel. For example, we have excellent sand screen technology, assimilated when we acquired another company. We quite likely have the best such technology in the world, and we have used it in Canada, Central Asia, Africa and the Middle East, etc. In this niche, our customers have reported that we outdo even Schlumberger.

There are a number of other products we offer where we are a leader. We have a very strong emphasis on proprietary technology, and hold over 200 patents thanks to work at facilities like our R&D center close to China University of Petroleum.

We also believe that our track record is very strong. Potential clients can meet with us and learn what we have accomplished—we have much to show. There are a number of international Antonoil staff members working on building these relationships. As I have said, we have set up service bases abroad—this makes it easier to liaise with potential clients on a local level.

Antonoil recently garnered Directors of the Year Awards for its board members, in recognition of its excellent corporate governance. The company has stated that strong corporate practices are an important aspect of its internationalization strategy. As advice to your colleagues in the industry, what do you believe are the most important capabilities Chinese companies must have to successfully compete abroad?

I believe that, in order to be an international service company, first of all size matters. Today, you need to have scale to go abroad. It is more difficult for small companies.

I have four years of experience now on the international market. I have faced lots of challenges and situations that I could not control. For one thing, size ensures that the company stays strong amidst setbacks.

I believe that you must have market advantages—technical, service-related, or otherwise. You need to be unique amongst your competitors. In China, it may be possible to win a contract based solely on having a very good relationship with your client. Internationally, this is not possible. If you want your business to be viable for the long-term, you absolutely must develop some distinctive capabilities—we are, after all, talking about services companies.

A third piece of advice is to exercise focus. You cannot just throw around money and go everywhere at once. You have to cautiously choose your markets, especially at the beginning. When we were starting our international business, I traveled to several countries to conduct a lot of research, and found that only one or two would be able to provide us with viable returns at the time. Even now, after we have expanded to 12 countries, 2 countries provide the majority of our foreign revenue: Iraq and Kazakhstan. In other markets, we are still, in large part, waiting for the harvest. This brings me to another point: you have to invest as an international service company, and invest quite heavily. So you must be strong financially; and, again, you have to be focused.

You also have to maintain a set of standards, which you operate by in every country. If you want longevity, you have to follow the rules. You have to focus on quality and high business standards. Different countries will present different situations: nonetheless, you should uphold your standards. Cutting corners may be beneficial in the short term, but eventually it will hurt your business.

Longevity is the ultimate goal, for any company. Schlumberger and Halliburton have existed for over 100 years. That is how they have been able to acquire such size and market share. If you go almost anywhere in the world, you always see the same four service providers: Schlumberger, Halliburton, Weatherford, and Baker Hughes. Others cannot match their magnitude and presence. Another piece is localization. In my mind, globalization is localization. If you execute localization in a given amount of countries, and have 80-90% local staff at all levels of your subsidiaries, then you can call yourself an international services company. We do not want to be a ‘Chinese-international’ company. We want to just be an ‘international’ company. Localization is sometimes done because it produces lower costs, but I think it is more important that it is a way of being closer to the various domestic cultures within your markets.

Finally, as a company that wants to do business internationally, you should tune every aspect of your business towards international practices: culture, engineers, investors, company strategy, structure, business model, and etc. If Chinese companies want to become global, they must change their ideas. They must change their culture. I have seen many Chinese companies try to operate abroad the same way that they do in China—but this is not enough. This does not work for the long-term.

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