(Yicai) June 23 -- Shares of Shenkai Petroleum & Chemical Equipment surged by their daily trading limit after the Chinese supplier of oil and gas equipment said it plans to build a deepwater drilling gear plant and gain control of a domestic smart drilling tech service provider

Shenkai [SHE: 002278] ended up 10 percent at CNY8.87 (USD1.23) a share today. The broader Shenzhen market climbed 0.4 percent.

Shenkai intends to sell shares to specific investors to raise CNY220 million (USD30.6 million), it announced on June 20, without disclosing the price and number of shares. Half of the proceeds will be used to expand high-end offshore engineering equipment capacity, CNY60 million (USD8.4 million) to buy a 51 percent stake in Blue Ocean Energy Technology, and the rest to supplement working capital, it added.

Shenkai plans to build the new plant within an existing factory to make 400 units of internationally advanced oil drilling equipment annually, including wellhead equipment, well control systems, and remote-control systems for offshore oil and gas field extraction, the Shanghai-based company said. The project will take one and a half years to construct, it added.

The new plant is expected to generate CNY242 million in revenue a year with a net profit of CNY20.5 million (USD2.9 million) once it becomes fully operational, Shenkai noted. The post-tax investment payback period is estimated to be just over six and a half years, it pointed out.

The move aims to fill domestic supply gaps for high-end deepwater oil and gas equipment and elevate China's offshore supply chain toward higher value-added segments, according to Shenkai.

Shenkai also plans to acquire the 51 percent stake in Blue Ocean from three individual shareholders. The Beijing-based target company's net profit exceeded CNY10 million (USD1.4 million) last year, with the sellers involved in the transaction committing to a profit of no less than CNY54 million over the next three years.

Blue Ocean's six proprietary drilling software systems cover the entire "data acquisition, modeling analysis, and dynamic decision-making" workflow. They are used to explore and develop conventional and unconventional oil and gas resources, including shale oil and gas.

After the acquisition, Shenkai will integrate Blue Ocean's digital solutions into its drilling equipment to enhance operational efficiency for clients and build a smart website ecosystem.

Shenkai is a key supplier of China's top three oil giants -- PetroChina, China Petroleum and Chemical Corporation, better known as Sinopec, and China National Offshore Oil Corporation, it said, adding that its products and services reach more than 50 countries and regions.

Editor: Martin Kadiev