The surge in oil and commodities prices in the year fostered favourable market conditions, thus enabled the Group to achieve a better financial performance than in the past few years.
During the year, trade protectionism disputes cast a shadow over global economy recovery. Affected by a slowdown in economic growth and an oversupply of crude oil, oil prices that had shown steady growth till October dropped quite sharply for the rest of the year. To manage the deterioration in economic conditions, the Group adhered to a prudent business strategy, enhanced sustainability of existing wells and promoted the application of new technologies to improve oil productivity from existing wells and maintain stringent cost control.
Overall, the Group recorded a better return for the year from its operations. In particular, the Karazhanbas oilfield in Kazakhstan, the Yuedong oilfield in China and Alumina Limited (“AWC”) made significant contributions to the performance of the Group.
During the year, the Group’s revenue increased 22.9% year-on-year to HK$4,427.3 million. EBITDA decreased by 1.4% to HK$2,070.9 million and profit attributable to shareholders rose 74.7% to HK$905.3 million. As of 31 December 2018, the Group’s total assets amounted to HK$13,679.7 million and equity attributable to shareholders was HK$6,141.5 million.
The Group’s crude oil business as a whole achieved a substantial improvement in operating results, attributable to a relatively higher average crude oil realised price and stringent ongoing cost control.
During the year, the Group continued to implement optimal maintenance plans to minimise the negative impact on oil production caused by the continuing natural decline of existing wells. The Group’s overall average daily production was 49,390 barrels (100% basis) for the year, which was comparable to 49,980 barrels for 2017. The Karazhanbas oilfield and the Yuedong oilfield recorded daily production of 39,600 barrels and 7,890 barrels (both on 100% basis), respectively, comparable to 2017. The Seram Block in Indonesia recorded daily production of 1,900 barrels (100% basis), representing a 33% drop to the previous year, due to a steeper natural decline of existing wells.
Results of the Karazhanbas oilfield were bolstered by a write-back of a prior year provision for impairment.
Also during the year, the Group completed its sale of a 10% participating interest in the production sharing contract which grants the right to explore, develop and produce petroleum from the Seram Block until 31 October 2019 (the “PSC”) to an independent third party. Additionally, the Group successfully renewed the PSC for a term of 20 years commencing from 1 November 2019. The Group therefore retains a 41% participating interest in the PSC and remains the operator of the Seram Block.
The Portland Aluminium Smelter (the “PAS”) resumed normal operations in 4Q 2017 with the restoration of its production capacity to pre-outage level. As a result, both production and sales volumes increased during the year. This, as well as a higher average selling price of aluminium than in 2017, meant a better operating performance from the PAS than in the previous year, although the PAS still made an operating loss due to sharp increases in certain production costs such as alumina and carbon materials. As the performance of the PAS was expected to be hampered by higher prices of electricity and alumina going forward, an impairment was provided in respect of the PAS.
The Group’s equity interest in AWC was reclassified on 30 June 2017 from a financial asset at fair value through profit or loss to an investment in an associate. Accordingly, in respect of the Group’s interest in AWC, a share of profit using the equity method was recorded for 2H 2017 and for the full year of 2018. Attributable to an increase in the average selling price of alumina, AWC recorded an increase in its results for the year.
CITIC Dameng Holdings Limited also recorded an increase in its results for the year, attributable to an increase in average selling prices of some of its major manganese products.
The Group’s coal segment benefitted from a higher average selling price of coal, but was impacted by a provision for impairment in respect of its mining assets. Overall, the segment recorded a better operating profit for the year.
During the year, the Group further strengthened its marketing strategy to meet the ever-changing market environment and trading behaviours. Attributable to an increase in commodities prices, the Group’s import and export of commodities segment recorded a better profit.
During the year, the Group managed to reduce its debt from internal resources. The Group’s financial
position remained strong throughout the year.
The Group believes that oil and commodities prices will at least remain steady at current levels, which should continue to benefit the Group. Meanwhile, the Group will try to make solid progress to achieve its major production and operation targets. As the global economic and political environments cast uncertainties on oil and commodities prices, the Group will continue to closely monitor the changing market environment and take appropriate actions to create returns for shareholders.
The Group will consider resuming the exploration of the Lofin area of the Seram Block. The Group will also endeavour in promoting application of new technologies to improve productivity in the Yuedong oilfield and plans to add new wells in the oilfield under a managed drilling program.
To strengthen its business portfolio, release investment value and promote sustainable growth, the Group will continue to look for quality investment opportunities. In addition, the ongoing support from CITIC Limited will drive the Group to achieve its objectives.
In June 2018, Mr. Ma Ting Hung retired as a non-executive director of the Company. In March 2019, Mr. Kwok Peter Viem resigned from the posts of the chairman of the Board and of the Company and an executive director of the Company and Mr. Sun Yufeng was appointed the chairman of the Board and of the Company and an executive director of the Company at the same time. On behalf of the Board, I would like to thank Mr. Ma and Mr. Kwok for their efforts and invaluable contribution to the Group and express our warm welcome to Mr. Sun on his joining the Board.
I, on behalf of the Board, would like to express my sincere appreciation to my fellow directors, management and all of my colleagues for their work, spirit, concerted effort and dedication in delivering our strategy in the challenging market environment. I would also like to express our heartfelt gratitude to our shareholders, customers, suppliers, bankers and business associates for their trust and support throughout the year.
2018 marked the 40th anniversary of China’s reform and opening up. Looking to the past as we ponder the years ahead, we see a promising picture which is set to be another extraordinary journey. I look forward to the continuous support from our shareholders as we bring these initiatives to fruition.