Chairman's Statement

Dear Shareholders,

On behalf of the Board of SSC, I would like to express my sincere gratitude to our shareholders and people from all walks of life for your interest and support to SSC.

In 2021, General Secretary Xi Jinping visited the 70183 Drilling Team of Shengli Oil Engineering Huanghe Drilling Corporation and gave important instructions during his inspection of Shengli Oilfield, which has embraced us with a feeling of great warmness, proudness and inspiration. Over the past year, we exerted our full efforts to overcome difficulties, create benefits, exploit market and enhance efficiency to ensure the progress of exploration and development works and accelerate high-quality development, striving for a great start of the “14th Five-Year” Plan for high-quality development. In 2021, the Company’s consolidated revenue under PRC ASBE amounted to RMB69.53 billion, a year-on-year increase of 2.1%; and the net profit attributable to the shareholders of the Company amounted to RMB179.79 million, a year-on-year increase of 127.6%.

In 2021, the Company actively leveraged on substantial increases in international oil prices to vigorously expand and optimize our market coverage with newly signed contracts amounted to RMB70.9 billion, representing a year-on-year increase of RMB1100 million. In the domestic Sinopec market, synergy advantages were completely displayed, bringing newly signed contracts up to RMB44.4 billion, a year-on-year increase of 7%,among which the full support given to acquiring more oil and gas reserves and breakthroughs made in shale gas replacement in Shunbei New Area are particular worth noting. Seven gas storage facilities were efficiently completed to effectively serve the upstream exploration and development. For domestic external markets, we further consolidated our position in three large scale and well-established customers or markets, namely CNPC, CNOOC, and PipeChina, and signed up new contracts of RMB12.8 billion, including CNPC’s southwest shale gas project of RMB4.1 billion, CNOOC’s market large-scale storage tank construction project of RMB1.1 billion, and PipeChina’s project of RMB3.0 billion. For overseas markets, we proactively overcame the impact of the pandemic to tap into and nurture large markets with good potentials. The development in Saudi Arabia, Kuwait, etc. maintained its momentum and rendered newly signed contracts of RMB13.7 billion. The oilfield comprehensive service project in Ecuador recorded income of RMB59 million. We were also awarded tender projects of oil and gas transmission in Uganda and 3D seismic detection in Mexico in the amounts of US$610 million and US$310 million, respectively.

The Company endeavored to enforce the strategy of “innovation-driven development” in 2021 with an aim to build up ourselves as a technology guided oil service company by making breakthroughs in key technologies and enhancement of technical service capabilities. We applied for 897 patents and were granted 542 patent authorizations and both reached our all-time high. By integrating innovative ultra-deep well drilling and completion and oil and gas operation and testing techniques, Shunbei 56X well and Tashen No.5 well reached depths of 9,300 meters and 9,017 meters, respectively, setting the deepest records for onshore directional wells and vertical wells in Asia, respectively. Ancillary technologies such as shale oil and gas wellbore speeding up tactic, rotary steering measurement and control, and crack network fracturing were widely applied in blocks in Fuling, Fuxing, and Baima, and their average drilling cycles were shortened by 11%, 34%, and 37%, respectively. Our self-developed Type I rotary steering system made it first one-kilometer drilling in one go and the ultra-deep high-temperature electrical imaging logging instrument went beyond 200°C. The construction of the cloud platform for SICP petroleum project was fully commenced. The wellbore business integration coordination system was put into operation. Several well site digital command centers were established. Advancements were made in engineering methods and digital models.

In 2021, the Company continued to intensify our efforts in reform implementation, bolster our top-level composition and coordination, and expand resource sharing. For shaping market landscape and optimization of resource allocation, we fine-tuned configuration among the domestic and foreign markets to formulate an overall market layout which facilitates orderly competition, regional resource sharing, and intensive and guaranteed services. For the construction of a new project-based management system, we continued to deepen and optimize the sharing and allocation of human, financial and material resources, logistics bases, and logistics supplies, and put forward online information sharing through accelerated construction of "two pools, two warehouses and one platform" supported with "talents pool”, “fund pool”, “materials warehouse”, "equipment warehouse” and “information platform”. Eighteen material centres were set up while logistics bases were reduced to 44. For professional reorganization, the Company accomplished the reorganization of testing, logging and locating operation, established Jingwei Company, furthered consolidation of regional measurement and control companies, and set up a drilling and downhole operation service management unit, i.e., the oil reservoir management department. Finally, our five business lines were linked up by professional management as a whole body. For financial management, we centralized coordination of domestic and foreign fund flows and continued to settle and clear account receivables and inventories. As a result of the settlement and recovery of RMB390 million bad and doubtful debts, our financial expenses decreased by RMB310 million year-on-year and we had an available cash flow of RMB1.8 billion.

In 2021, the Company was committed to green and low-carbon development by accelerating the research, planning, implementation and promotion of transformation and development in the context of "dual-carbon". Through our continuous efforts in research and development of low-carbon technologies, we proactively participated in the expansion of emerging markets such as CCUS, geothermal energy, coalbed methane and hydrogen energy, vigorously implemented clean energy projects such as electric drilling rigs, grid electric drilling, grid electric fracturing, gas power and solar energy, continuously promoted energy-saving technologies such as oil-to-gas conversion, oil-to-electricity conversion, waste heat and pressure recovery, widely used dual-fuel engines and other new energy-saving devices, and supported the completion of the Shengli Oilfield - Sinopec Qilu Megaton CCUS Project, taking solid steps towards comprehensive sustainable and high-quality development. Meanwhile, the Company attached importance to giving back to the society and fulfilling its social responsibilities with practical actions by proactively promoting rural revitalization, participating in voluntary activities and emergency rescue. In the process of market development and the construction of the "Belt and Road", the Company cooperated with domestic and overseas partners and general public in industrial zones to build a harmonious and stable community relationship, contributing to the harmonious development of society.

In February 2021, the Company completed the election of the new session of the Board in accordance with laws and regulation and the Articles of Association. Over the past year, all directors of that new Board worked diligently and conscientiously together, paid more attention to industry trends, emphasized on risk management and control, prudent and scientific decision-making, and strived to ensure the sustainable and healthy development of various business segments of the Company.

Looking ahead to 2022, the Company will encounter both challenges and opportunities. From the perspective of favorable factors, international oil prices have risen sharply, foreign oil companies generally increase their upstream capital expenditures, and domestic oil companies unswervingly implement the “Seven-year Action Plan” and increase their exploration and development efforts. In particular, affected by sudden geopolitical changes in some regions, the oil and gas supply situation has tightened and the oil service market will be increasingly benefited in the short term, but there are still uncertainties. From a long-term perspective, the Company’s technological innovation capabilities and the value creation capabilities along the entire industry chain need to be continuously improved. The task of international operation still has a long way to go. The transformation and development against the background of “dual-carbon” still needs to be accelerated with more efforts. From the perspective of the Company’s own situation, with the diligence and perseverance across the Company, the structure and systems of our Company have become more streamlined and efficient. Our market coverage and asset allocation are kept on making adjustment and optimizing. We shall not stop acquiring breakthroughs in our core technologies nor speeding upgrade of our key equipment, so as to lay a concrete foundation for the high-quality development and accumulate strength for the comprehensive improvement of the Company.

2022 is the crucial year to realize our high-quality development. The Company will thoroughly follow the important instructions of General Secretary Xi Jinping given during his visit to Shengli Oilfield, fully carry out the themed actions of “Keep the entrustment in mind, make new contributions, create new achievements and celebrate the 20th NCPC”, conduct in-depth “Comprehensive Improvement Year” activities, focus on high-quality scale market, accurately optimize resource allocation, continue to increase its efforts in technological innovation, reform innovation and management innovation, comprehensively improve our technical capability, management capability, comprehensive quality and competitiveness and strive to promote the overall improvement of the Company’s development and business performance.

Firstly, we have to extend market reach, increase income and acquire efficiency. Our planned newly signed contract value for 2022 is RMB72 billion. The Sinopec market should do a good job in expansion of in oil and gas reserves and production and the strengthening of the complete process of production, supply, storage and sales. For domestic external markets, we shall closely monitor every move our key markets including CNPC, CNOOC, and PipeChina. For overseas markets, we shall continue expand and strengthen the three major markets, and accelerate the pace of “Going Out” of the technical service business.

Secondly, we have to keep bolstering technology innovation and ramping up our scientific strength in support of advancements in our 17 core technologies including measurement while drilling technology and high-temperature and high-pressure logging in order to comprehensively enhance our engineering capability to next level.

Thirdly, we have to coordinate and plan our “dual-carbon” transformation and development. We shall build and operate a new energy R&D center, actively expand CCUS, wind energy, geothermal, environmental protection, underground coal gasification and other new businesses, expand into new energy markets and develop high value-added industries.

Fourthly, we have to keep deepening our internal reform. We shall comprehensively promote project-based management in our organization to strengthen project cost management and control, improve operational efficiency, coordinate marketing deployment, optimize resource allocation, and facilitate business quality and efficiency upgrades.

The Board and I believe that through the joint efforts of the Board, the Supervisory Committee, the management and all the staff, coupled with the support of our shareholders and the wider community, SSC will follow its paces toward the high-quality development track, keep advancing to be a world class leading technology-guided oil service company and create more value for shareholders and the society.

Chen Xikun
Beijing, China
29 March 2022