China Merchants Securities has released a research report stating that on the demand side, capital expenditure for deepwater projects and oil extraction costs are steadily improving. As shallow-water resources mature and deepwater extraction costs decline, deepwater and ultra-deepwater projects are expected to become the primary source of incremental demand for offshore engineering equipment. On the supply side, the industry's cyclical recovery is gradually transmitting from rental rates to equipment orders and service prices. The three core segments—drilling platforms, subsea production systems, and FPSOs—are identified as key investment directions.
On the demand side, offshore oil and gas has become a major contributor to global oil and gas growth, with lower extraction costs opening up long-term potential. Over the past decade, offshore oil and gas has accounted for nearly 60% of new global oil and gas reserves, with deepwater and ultra-deepwater fields making up a significant portion of these new offshore reserves. As shallow-water resources mature and deepwater extraction costs decline, deepwater and ultra-deepwater projects are expected to become the main source of incremental demand for offshore engineering equipment.
On the supply side, the order-to-fleet ratio is at a historic low, and effective supply constraints are gradually tightening. As of the end of 2025, the global order-to-fleet ratio for offshore platforms was approximately 9.1%, with limited new deliveries expected in the coming years. Additionally, a large number of drilling platforms, FPSOs, and offshore support vessels have entered an aging phase, making reactivation and upgrade costs high. The continued recovery in rental rates for AHTS and PSV vessels, as well as service prices for subsea equipment, has validated the improvement in the industry's supply-demand dynamics.
In the industry chain, drilling platforms are benefiting from higher utilization rates and rising day rates, with the most complete supply-side cleanup, offering stronger earnings and asset revaluation flexibility. Subsea production systems are benefiting from an increase in deepwater projects, a backlog of EPCI orders, and higher service prices for equipment, providing strong order visibility and earnings certainty. FPSOs have the highest unit value, with a robust pipeline of projects expected to be awarded between 2026 and 2029, with Brazil, South America, and Africa likely to be the primary regions for new orders.
Key Investment Directions
For the drilling platform segment, focus on companies with capabilities in offshore platform construction and assembly, as well as drilling equipment firms benefiting from the maintenance, upgrade, and reactivation of existing platforms. Examples include China Merchants Group (A-shares) and COSL.
For the subsea production system segment, attention should be on firms with EPCI, installation, and maintenance capabilities for offshore engineering, as well as suppliers of core subsea equipment components. Examples include Dwell, Shenkai Co., Sinopec Oilfield Equipment Corporation, COOEC, and Deshi Co.
For the FPSO segment, focus on companies with capabilities in FPSO hulls, topsides, and engineering, procurement, and construction (EPC) services. Examples include China Merchants Group (A-shares), Bomai Ke, and COOEC.
Risk Factors
Risks include sustained increases in raw material prices, volatility in oil prices, deepwater project FIDs falling short of expectations, and challenges in overseas project execution and payment collection.
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