The report on the Party's 20th National Congress stressed that we need to strengthen security capacity in key areas, ensuring the security of food, energy and resources, as well as important industrial and supply chains. China’s oil and gas industry is still highly dependent on foreign countries, and energy security is an important factor related to the stable operation of the economy. Hence, this is an issue that must be kept under strict control.

To service China’s national strategy, JIC Leasing has entered into an operational lease with an oil drilling equipment manufacturer to help enterprises solve liquidity and sales problems through professional services, contributing to national energy security.

Stepping up oil & gas exploration and development and taking the initiative in energy security

At the beginning of 2022, the Modern Energy System Plan for the 14thFive-Year Plan Period issued by the National Development and Reform Commission and the National Energy Administration set clear targets and requirements for the output of crude oil and natural gas. The Guidelines for 2022 Energy Work issued by the National Energy Administration emphasize that ensuring a secure and stable energy supply is a top priority, and that efforts should be made to enhance capacity for domestic energy production, thus “taking the rice bowl of energy into our own hands”. The document clearly proposes the implementation of the 14th Five-Year Plan as well as an implementation plan for oil and gas exploration and development. This includes consolidating the annual investment and workload in terms of exploration and development, accelerating the development and application of advanced oil and gas technologies, and achieving the set goals of restoring crude oil output to 200 million tons and steadily increasing natural gas production by 2022.

A number of major domestic oil producers formulated a Seven-year Action Plan in 2019. This Action Plan is intended to increase oil and gas reserves and production by strengthening upstream exploration and development efforts, fulfilling the main responsibility for increasing reserves and production, and setting specific targets for exploration workload, proven reserves and capital investment.

The Asset environment is changing, and enterprise stock assets are in urgent need of revitalization

The oil drilling and production equipment manufacturer in this partnership is a subsidiary of the China National Petroleum Corporation, and a leading enterprise in oil drilling rig design and manufacture. It specializes in the design and production of 1000M-12000M conventional land drilling rigs across nine classes and four propulsion forms, polar drilling rigs and marine rigs, offshore drilling and production platforms and offshore platforms, 500HP-3000HP drilling pump series and well control wellhead equipment, special vehicles, steel pipe ropes, large diameter cone drill bits and other ancillary products for drilling equipment.

Using the production and procurement model of previous years, the enterprise arranged for production based on the scheduling plan issued by the China National Petroleum Corporation, in order to ensure the smooth production of the equipment and to meet the needs of downstream drilling companies. With the ongoing advances in market reform, the enterprise is now more involved in market competition and has received a large number of drill orders from numerous oil producers at home and abroad thanks to its excellent drill products. Due to the impact of the capital environment, however, the increased production demands on this enterprise is not proportional to the support it can obtain in terms of capital expenditure. Hence, a new business model was urgently needed to cover this increased demand.

Full use is made of the “resource allocator” function, while the operating leasing model helps resolve difficulties experienced by enterprises

JIC Leasing continuously follows up on the needs of various enterprises. In response to the contradiction between the demand for supply guarantee and the financial pressures these enterprises are facing, JIC Leasing has adopted an operational leasing model to help companies solve their funding and marketing problems, while at the same time meeting the equipment needs of downstream drilling companies.

Using an operational leasing model, JIC Leasing purchases equipment from the equipment supplier and then leases that equipment to the user. By utilizing the equipment production and professional drilling and mining operations and maintenance team of the enterprise, the subsidiary then rents the equipment held by JIC and uses it for oilfield exploitation, ensuring the enterprise can make efficient use of its working capital to create greater value under the ‘assets-light’ model.

First operational leasing of fracturing equipment to support non-conventional oil and gas production

Among a huge variety of products, JIC Leasing chose relatively independent fracturing truck equipment for its first operational leasing cooperation. In the future, we will continue to promote the leasing business for diesel-driven fracturing trucks, and will also continue to explore the leasing of electrically-driven fracturing skids and drilling rigs.

Fracturing equipment (including fracturing trucks and fracturing skids) constitute core equipment for shale oil and gas exploitation. Fracturing technology is not only applicable to the development of non-conventional oil and gas resources such as shale oil and gas, but also a core link in upgrading the production technology of old oil fields. Non-conventional oil and gas resources refer to those resources that cannot be economically exploited using traditional technologies. They are mainly composed of shale gas, shale oil, tight gas, coal-bed methane and other resource types, and tend to be found in Ordos, Sichuan, Songliao, Bohai Bay, Jungar, Qinshui and other oil-gas-bearing basins. With the development of oil and gas exploration and its associated technology, China has entered a new development stage of equal emphasis on conventional and non-conventional oil & gas exploitation. Non-conventional oil and gas has become an important resource support for future production stabilization and increase.

The energy sector has to be in our own hands. JIC Leasing will continue to make the most of the advantages of financial leasing, serving both the national strategy and the real economy, and contributing to the nation’s energy security.