Cinda: The development of oil and gas resources from land to sea has broad prospects for industrial investment.

Cinda released a research report stating that under the current long-term concerns about energy transition, with the extended period of stable high oil prices and expectations of improvement, oil companies may be more inclined to develop ocean oil and gas resources with long development cycles but excellent resource endowment and lower barrel oil costs. At present, the development of ocean oil and gas resources is booming, with the advancement of technology and equipment speeding up, helping dormant reserves turn into gushing production, and improving the competitiveness of the Chinese oilfield service industry. It is recommended to pay attention to resource targets and oilfield targets that can deliver stable performance. Key points of Cinda are as follows: - High oil prices may speed up the development of new oil and gas fields in new areas. - Consideration of the continuous growth expectations of oil demand and the potential bottleneck in U.S. shale oil supply, the market still needs new sources of supply other than the Middle East. Under the current long-term concerns about energy transition, with the extended period of stable high oil prices and expectations of improvement, oil companies may be more inclined to develop ocean oil and gas resources with long development cycles but excellent resource endowment and lower barrel oil costs. - The development of ocean oil and gas resources is still in its infancy. 1) The abundance of ocean oil and gas reserves is lower than that of land. As of 2022, the global conventional oil and gas reserves-to-production ratio in offshore areas was 67 years, higher than the 48 years for onshore conventional oil and gas and 54 years for unconventional oil and gas. 2) The development costs of ocean oil and gas have been decreasing. As of 2023, the average development cost of ocean oil and gas resources, especially deepwater resources, is second only to onshore oil fields in the Middle East, and even slightly lower than U.S. shale oil, becoming the most commercially valuable source of future growth in crude oil supply. 3) Support policies for ocean oil and gas. Countries rich in offshore deepwater oil fields, such as Brazil, Guyana, Nigeria, have introduced a series of supportive policies to encourage oil and gas companies to increase production in deepwater oil and gas fields. 4) Continued growth in capital expenditure on ocean oil and gas. Influenced by the consumption of U.S. shale resources, after the rebound in investment in onshore unconventional oil after the rise in oil prices after 2020, the growth rate gradually declined, while the growth rate for offshore investment continued to maintain around 20% after turning positive in 2020. The advancement of technology and equipment speeds up, helping dormant reserves turn into gushing production, and China's oilfield service industry improves its competitiveness in the global market. The deepening of ocean oil and gas exploration and development cannot be separated from the rapid development of marine engineering technology and equipment. The progress of marine oil and gas technology has brought about two important impacts: 1) Increase in resource accessibility. The international drilling equipment operating water depth capability has exceeded 4000 meters, China's deepwater laying pipe capability has exceeded 1500 meters, drilling operations water depth exceeds 2500 meters, semi-submersible production storage platform operation water depth is about 1500 meters, laying a foundation for the development of international deep-sea and South China Sea oil and gas resources. 2) Efficiency improvement drives cost reduction. Global and China's technological development has made the feasibility and economic efficiency of marine oil and gas resource development improve. At the same time, with the improvement of China's technology and equipment and its convergence with overseas levels, as well as the significant price and cost advantages of domestic companies in the oilfield service industry chain compared to overseas companies, the domestic marine oilfield service industry is gradually going global and gaining market share globally, increasing from 10% in 2019 to 13% in 2023. This trend is still ongoing and evolving. Investment recommendations: In terms of resource targets, considering that China's Bohai Sea is in the exploration peak stage and the South China Sea is in the early exploration stage, the future development potential of oil and gas in China is still significant. Combining the characteristics of layout in advantageous global ocean oil and gas resource areas such as Brazil, Guyana, Africa, it is recommended to pay attention to CNOOC Limited / CNOOC (600938.SH, 00883), as well as Petrochina / PETROCHINA (601857.SH, 00857) and China Petroleum & Chemical Corporation / SINOPEC CORP (600028.SH, 00386) which have offshore cooperation agreements with CNOOC and Sino Geophysical (300191.SZ). In terms of oilfield targets, considering that the global oilfield industry has experienced consolidation, and with the background of high oil prices and ocean resource development, related construction and operation demands are in a prosperous process, and are expected to continue for a long period in the future. Considering that China's offshore oilfield companies have accumulated certain experience, qualifications, and technological capabilities, their international competitiveness has risen to a high position, and they have strong price and cost advantages when going overseas. It is suggested to pay attention to China Oilfield Services / CHINA OILFIELD (601808.SH, 02883), Offshore Oil Engineering (600583.SH), CNOOC Energy Technology & Services (600968.SH), and BOMESC Offshore Engineering (603727.SH) which are currently in the phase of releasing order performance. Risk factors: Economic recession risk; oil price volatility risk; risk of increased substitution of traditional energy by new energy sources; exchange rate volatility risk.