Investing.com — Oil services stocks could enter a promising phase in 2025, if George Soros' “boom and bust sequence model” plays out as expected, according to Bernstein analysts. The sector is believed to be at the beginning of phase 4, which has historically been associated with equity returns driven by a gap between infrastructure improvements and investor skepticism.
“Based on this example, we will look at the stocks of the European OFS – and perhaps, but to a lesser extent, the stocks of North America – as of now at the beginning of phase 4,” Bernstein analysts led by Guillaume Delaby note.
The fourth stage, they explain, “tends to be very attractive to equity returns, as it results from the difference between: 1) rapidly improving economic conditions; and 2) very low investor expectations.
“Therefore, we can expect a strong performance (especially European) OFS shares in 1Q25 and possibly 2H25,” the analysts added.
Bernstein expects oil and gas exploration and production (E&P) spending to increase about 5% by 2024, reaching about $600 billion. Offshore operations saw strong growth, up 8% to $250 billion, while offshore investment rose 1% to $350 billion.
By 2025, oil and gas capital expenditures are expected to increase modestly by 1-2%, to approximately $610 billion. Offshore spending is forecast to grow by 3-4%, hitting $260 billion, with onshore spending expected to remain flat.
“Subsea remains an attractive segment,” analysts emphasize, citing “long-term apparent demand, a duopolistic/oligopolistic structure, a lack of existing vessels, and a significant increase in margins.”
They also point to potential surprises for gas and LNG projects in late 2025 or early 2026, and higher capex in the Middle East in the 2026-2027 period. However, they caution that the outlook for North America is less clear.
In terms of investment proposals, Bernstein emphasizes Saipem (NEW :), ADNOC Drilling (ADX:), ADNOC Logistics & Services (L&S) (ADX:), and SBM Offshore NV (AS:) as its top picks, joined by Technip Energy BV (EPA:), which they consider “the only real growth stock in the sector.”
Saipem is expected to start the year with a 35 billion backlog, with its fleet fully stocked in 2026 and half of the 2027 capacity already secured.
In the Middle East, Adnoc Drilling is set to win a $1.7 billion contract to drill up to 144 unconventional wells before 2026.
Adnoc L&S, meanwhile, is expected to multiply the revenue of its shipping division with the integration of Navig8 and expand its Integrated Logistics division through significant capex initiatives.
Finally, SBM Offshore may have capital after changing its business model to a lower capital intensity, focusing more on operations and maintenance, Bernstein explains.