Investing.com — Oil services stocks could enter a promising phase in 2025 if George Soros’s “bull-bust sequence model” plays out as expected, according to Bernstein analysts. The sector is believed to be at the start of Phase 4, which has historically been aligned with strong equity returns driven by a gap between improving fundamentals and investor skepticism.
“Based on this model, we would view European OFS stocks – and possibly, but to a lesser extent, North American stocks – as currently at the start of Phase 4,” noted Bernstein analysts led by Guillaume Delaby.
The fourth stage, they explain, “is usually very attractive for capital returns, since it arises from the difference between: 1) the rapidly improving economic reality; and 2) still quite low investor expectations.”
“Thus, we would expect continued strong results for (mainly European) OFS stocks in 1Q25 and likely 2H25,” the analysts added.
Bernstein predicts that oil and gas exploration and production (E&P) spending will increase by about 5% in 2024, reaching approximately $600 billion. Offshore activity saw stronger growth, climbing 8% to US$250 billion, while onshore investment rose just 1% to US$350 billion.
Oil and gas capital expenditures are projected to increase modestly by 1-2% in 2025, to approximately $610 billion. Onshore spending is forecast to grow by 3-4% to reach $260 billion, with onshore spending expected to remain flat.
“Subsea remains the most attractive segment,” the analysts point out, citing “visible long-term demand, a duopolistic/oligopolistic structure, a lack of available vessels and a visible increase in margins.”
They also point to potential surprises in the direction of gas and LNG project growth by late 2025 or early 2026, as well as higher capital investment in the Middle East in 2026-2027. However, they caution that the outlook for North America remains less clear.
As for investment recommendations, Bernstein points out Saipem (BIT:), ADNOC drilling (ADX:), ADNOC Logistics & Services (L&S) (ADX:) and SBM Offshore NV (AS:) as top picks, joining Technip Energies BV (EPA:), which they consider “the only true growth stock in the sector”.
Saipem is expected to start the year with a backlog of EUR 35 billion, with the fleet fully occupied by 2026, and half of the capacity for 2027 already secured.
In the Middle East, Adnoc Drilling is in a position to benefit from a $1.7 billion contract to drill up to 144 unconventional wells before 2026.
Meanwhile, Adnoc L&S is expected to double the revenue of its shipping segment with the consolidation of Navig8 and expand its integrated logistics segment through significant capital initiatives.
Ultimately, SBM Offshore could capitalize on shifting its business model toward a lower capital intensity, focusing more on operations and maintenance, Bernstein explains.
