Buoyant international market for oilfield services. The global Oilfield Services (OFS) market is expected to grow at 3-4% CAGR through 2030, driven by robust production and exploration activities (largely due to the rapid growth in the gas segment and deployment of new technologies aimed at optimising production costs). The North American market (NAM) is expected to remain the largest during the forecast period, owing to resilient drilling and production activity in shale fields. However, in the near term, NAM drilling and completion (D&C) capex growth could see single digit decline with pricing pressure in 2024 before turning positive again in 2025. On the other hand, the international D&C market is expected to remain in positive growth territory over the next two years. The deepwater segment remains the star performer, seeing a robust Final Investment Decision (FID) project pipeline.
Will US election results impact the US drillers? While policy actions certainly matter for the oil and gas (O&G) industry’s future, the ever-booming US production levels over the past decade indicate that irrespective of the candidates’ stated stance towards clean energy vs fossil fuels, oil market fundamentals (global oil demand, oil prices, production efficiencies as well as energy security) eventually remain the key drivers. Unlike coal, which has shown clear declining trends in the US, O&G production climbed higher at the end of the administration’s term than at the beginning for the past three US presidencies. Nevertheless, the US election on 5 Nov will be keenly watched as the latest polls show a tight race between Democrats (Kamala Harris) and Republicans (Donald Trump). A Trump win could be mildly positive for the OFS industry, given his widely known stance as a pro-fossil fuel supporter and could potentially stimulate O&G demand further in the US while pressing ahead with LNG export terminal approvals that have been banned by the Biden administration.
Opportunity to bottom-fish blue-chip names. Weak macroeconomics and muted oil market fundamentals – slower-than-expected oil demand and fears of rising OPEC+ supply – have taken a toll on share price performance of OFS stocks the past few months with sharp share price correction of c.30% for most stocks from recent highs in April, pushing valuation of the top three OFS players to an average of 6.5x FY25 EV/EBITDA or 1.7SD below mean. We believe any downside has been priced in to a large extent. The sell-off appears overblown, in our view, given the healthy growth of projected O&G capex in international markets, and oil prices are unlikely to fall below USD70/bbl, as OPEC+ could take more steps to stabilise the oil markets.
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