Capex discipline trend to continue in 2025. The trend of capex discipline in the oil and gas (O&G) industry is likely to persist in 2025, especially with expectations of moderating oil prices. Oil majors remain focused on returning capital to shareholders via dividends and buybacks, thus the low reinvestment rates, further aided by cost reduction and efficiency gains over the past decade. Some signals of capex scale back have been observed. In early December, Chevron unveiled plans to reduce 2025 capex by ~USD1bn or c.6-7% to the USD14.5-15.5bn range (vs USD15.5-16.5bn for 2024), including investment cuts in the US Permian basin, in favour of free cash flow. Petrobras indicated an intention to lower 2025 capex from USD21bn to USD17bn, citing rising equipment cost and financing limitations. Over in Asia, Petronas’ capex may also decline in 2025 due to greenfield project delays and loss of Sarawak gas income. There will be more clarity in the next few months as other supermajors and national oil companies (NOCs) release their annual strategies.
Oilfield services’ medium-term outlook remains constructive. Despite the likelihood of a slight slowdown in the near term, we believe the longer term outlook remains constructive with low single digit growth expected for global oilfield services (OFS) through 2030, driven by still robust production and exploration activities, particularly in the gas segment, and the deployment of new technologies, aimed at optimising production costs and decarbonisation. Digitalisation and low carbon technology investment will continue to be the bright spots of OFS market with 25-30% of key oil majors’ capex spent on low carbon products/technology (comprising hydrogen production and carbon capture). OFS giants, Schlumberger and Baker Hughes, are the industry leaders in this regard—taking the leap and transforming into energy technology companies that develop critical technologies for the transition. The North American market is also expected to see an uptick in activities with Trump promising to raise O&G lease sales and expedite approvals for LNG export permits. The consolidation trend in the oilfield service sector is also set to intensify under Trump.
Stay with the industry leaders. Weak macroeconomics and muted oil market fundamentals have taken a toll on share price performance of OFS stocks this year with Schlumberger (SLB) and Halliburton (HAL) having corrected ~20% YTD. Baker Hughes (BKR) outperformed its two peers with share price rising over 20% YTD, thanks to its steadier diversified portfolio and gas leverage which are expected to continue driving the outperformance. We believe downside has been priced in to a large extent. The O&G capex and OFS outlook remain constructive as long as oil price remains above USD70/bbl.
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