Sinolink: Geopolitical conflicts drive the oil service industry to rebound, focusing on the resilience of the marine oil and gas market.

Sinolink released a research report stating that the escalation of Middle East geopolitical conflicts directly pushes up international oil prices and expectations of supply interruptions. With oil and gas prices running at high levels, the oilfield service industry's outlook is positive. Looking at the increase in the global oil and gas market, the offshore oil and gas market dominates, accounting for over 80%. Therefore, in the short term, with oil prices running high, oilfield service companies are expected to see a rapid increase in operations, fierce competition among onshore oilfield service companies, and offshore oilfield service companies are expected to have more resilience in performance. In the medium to long term, with the abundant reserves of global deep-sea oil and gas and low comprehensive extraction costs, economic viability is highlighted, and the investment prospects for deep-sea oil and gas projects are broad. Sinolink's main points are as follows: Middle East geopolitical conflicts are driving international oil prices and are expected to boost the global oilfield service industry. Since the end of February, the Middle East geopolitical conflicts have intensified, and the blockage of the Strait of Hormuz has resulted in substantial supply interruptions, affecting about 20% of global crude oil supply, pushing global oil and gas prices rapidly upwards and maintaining high levels. Currently, energy facilities in the Middle East have been damaged in many places, and the cost of restoring production after long-term shutdown of oil wells is high, resulting in the permanent loss of some production capacity. Repairing the damage is difficult, and the usual supply chain recovery and repair time is at least 6 months. In addition, this energy supply crisis has also forced countries to reassess their energy security strategies, increasing the emphasis on domestic energy development, thereby boosting the outlook for the global oilfield service industry. The drilling phase of oilfield services is highly sensitive to oil prices and is expected to benefit first. In the oilfield service industry chain, the exploration and drilling stages have high technical requirements, high value proportions, and are most sensitive to changes in demand factors such as oil prices. Globally, offshore oil and gas is the absolute growth driver. Currently, the remaining production capacity of offshore drilling platforms is basically exhausted, with relatively rigid supply, and the global average utilization rate remains high at around 80%. In addition, offshore drilling platforms have heavy assets, and depreciation costs are high. Therefore, when drilling platform rents and utilization rates rise, the elastic growth in gross profit margins of offshore drilling businesses is significant. Looking back over the past decade, China Oilfield Services drilling business is highly tied to capital expenditure by CNOOC, with the growth rate of CAPEX directly determining its revenue and gross profit elasticity. By 2025, relying on CNOOC's high CAPEX and improvements in operating rates and daily fees, China Oilfield Services' drilling gross profit margin will return to an upward trend. The outlook for offshore oil and gas development is broad, and FPSO is welcoming new opportunities. The improvement in the economic viability of deep-sea oil and gas development is driving investment in offshore oil and gas development, with ample FPSO reserve projects in South America and West Africa. Currently, oil companies are accelerating the transformation to the BOT model, significantly reducing the financing threshold of projects by sharing financing risks with general contractors. According to the global energy market research and consulting firm EMA, the global FPSO market is expected to maintain steady growth from 2026 to 2031, with a conservative estimate of at least 7 new orders per year, and an optimistic scenario of up to 11-15. The FPSO supply chain ranges from general contractors to shipbuilding to subcontractors, with current overall capacity constraints, and Chinese companies have strong advantages in cost, capacity, delivery, and operation and maintenance. In terms of global manufacturing and supply chains, Chinese shipyards such as CIMC Raffles, Shanghai Waigaoqiao Free Trade Zone Group have taken the lead in the construction of FPSO hulls, while Singapore and South Korean shipyards have further reduced their market share. In the upper module manufacturing sector: China, Singapore, and Brazil compete for dominance, with only Chinese companies having sufficient capacity and faster delivery capabilities. The bank believes that Chinese manufacturing companies are expected to fully benefit from the acceleration in demand for FPSOs. Risk Warning Risk of industry cycles and oil price fluctuations; Risks of project delivery and cost control; Risks of intensified market competition.