According to the Zhitong Finance APP, Xinda Securities released a research report stating that under current long-term concerns about energy transition, as oil prices remain high for an extended period and expectations rise, oil companies may be more inclined to develop offshore oil and gas resources that have long development cycles but excellent resource endowments and lower barrel oil costs. Currently, the development of offshore oil and gas resources is gaining momentum, and with the acceleration of technological equipment advancements, the dormant reserves are turning into surging production, enhancing the competitiveness of China's oil service industry in overseas markets. It is recommended to pay attention to resource targets and oil service targets with stable performance.

Key Points from Xinda Securities:

High oil prices may accelerate the development of new oil and gas fields.

Generally speaking, when a stimulus factor leads to an increase in crude oil demand that exceeds supply (or when a factor causes a significant decrease in supply below demand), oil prices rise. High oil prices increase the safety margin of costs for oil and gas producers while cash profits also climb, thereby triggering large-scale capital expenditures. Meanwhile, the prosperity of oil usually prompts the introduction of new, non-traditional oil supplies into the market, often through exploration of new fields or previously considered low-value oil fields.

Given the expectation of sustained growth in oil demand and considering the bottleneck in U.S. shale oil supply, the market still needs new supply sources outside of the Middle East to fill the gap. Under current long-term concerns about energy transition, as oil prices remain high for an extended period and expectations rise, oil companies may be more inclined to develop offshore oil and gas resources that have long development cycles but excellent resource endowments and lower barrel oil costs.

The development of offshore oil and gas resources is gaining momentum.

1) Offshore oil and gas resources are abundant, with a lower development level compared to onshore. As of 2022, the global conventional oil and gas reserve-to-production ratio in offshore areas is 67 years, higher than the 48 years for onshore conventional oil and gas and 54 years for unconventional oil and gas.

2) The cost of offshore oil and gas development is decreasing. As of 2023, the average development cost of offshore oil and gas resources—especially deepwater resources—is second only to onshore oil fields in the Middle East and is even slightly lower than U.S. shale oil, making it the most commercially viable source for future crude oil supply growth.

3) Policy support for offshore oil and gas. Countries rich in offshore deepwater oil field resources, such as Brazil, Guyana, and Nigeria, have introduced a series of supportive policies to encourage oil and gas companies to increase production in deepwater oil fields.

4) Capital expenditures for offshore oil and gas continue to grow. Affected by the consumption of U.S. shale resources, after experiencing a marginal investment rebound due to rising oil prices post-2020, onshore unconventional investment growth has gradually slowed, while offshore investment growth has remained around 20% since turning positive in 2020.

The rapid advancement of technological equipment is helping dormant reserves turn into surging production, enhancing the competitiveness of China's oil service industry overseas.

The deepening exploration and development of offshore oil and gas cannot be separated from the rapid development of marine engineering technology and equipment. The technological advancements in offshore oil and gas have brought about two significant impacts:

1) Improved resource accessibility. The operational water depth capability of international drilling equipment has exceeded 4,000 meters, while China's deepwater pipeline laying capability has surpassed 1,500 meters, with drilling operations exceeding 2,500 meters and semi-submersible production storage platforms operating at around 1,500 meters, laying the foundation for the development of international deep-sea and China's South China Sea oil and gas resources 2) Efficiency improvements drive cost reductions. The development of technological equipment globally and in China has enhanced the feasibility and economics of marine oil and gas resource development. At the same time, as China's technology and equipment improve and align with international standards, along with the significant price and cost advantages of domestic oil service companies compared to their overseas counterparts, the domestic marine oil service industry is gradually expanding overseas and competing internationally. China's marine oil service industry has seen its global market share increase from 10% in 2019 to 13% in 2023, and this trend continues to evolve.

Investment Recommendations:

In terms of resource targets, considering that China's Bohai Sea is currently in a peak exploration phase and the South China Sea is in the early exploration stage, there is still significant potential for oil and gas development in China in the future.

In light of the layout characteristics in globally advantageous marine oil and gas resource regions such as Brazil, Guyana, and Africa, it is recommended to pay attention to CNOOC/China National Offshore Oil Corporation (600938.SH,00883), as well as China Petroleum/China National Petroleum Corporation (601857.SH,00857), Sinopec/Sinopec Limited (600028.SH,00386), and Potential Energy Holdings (300191.SZ), which have offshore cooperation agreements with CNOOC.

In terms of oil service targets, considering that the global oil service industry has undergone a reshuffle and clearing, and under the backdrop of a mid-to-high oil price cycle and marine resource development, the demand for related construction and operations is in an upward trend, which is expected to continue for a considerable period.

Given that China's offshore oil service companies have accumulated certain experience, qualifications, and technological expertise, their international competitiveness has risen to a high level, providing strong price and cost advantages for going overseas. It is recommended to focus on CNOOC Services/CNOOC Oilfield Services (601808.SH,02883), Offshore Oil Engineering (600583.SH), CNOOC Development (600968.SH), and BOMESC (603727.SH), which are currently in an order performance release cycle.

Risk Factors: Economic recession risk; oil price volatility risk; risk of new energy increasing its substitution of traditional energy; exchange rate fluctuation risk