CMSC: After ten years of supply-side adjustment, the offshore engineering sector welcomes a cyclical turning point.

CMSC has released a research report stating that on the demand side, capital expenditures and oil extraction costs for deepwater projects continue to improve. With shallow water resources gradually maturing and deepwater extraction costs declining, deepwater and ultra-deepwater projects are expected to become the main incremental source of demand for marine engineering equipment. On the supply side, the industry's recovery in prosperity is gradually transmitting from rental rates to equipment orders and service prices. The three core areas of drilling platforms, subsea production systems, and FPSOs are key investment directions. The main points from CMSC are as follows: Demand Side Marine oil and gas have become an important source of incremental oil and gas globally, with declining extraction costs opening up long-term potential. Over the past decade, nearly 60% of new global oil and gas reserves have come from marine areas, with deepwater and ultra-deepwater representing a significant proportion of new offshore reserves. As shallow water resources mature and deepwater extraction costs decrease, deepwater and ultra-deepwater projects are expected to become the main incremental source of demand for marine engineering equipment. Supply Side The order backlog ratio is at a historical low, and effective supply constraints are gradually strengthening. By the end of 2025, the global order backlog ratio for marine engineering platforms is approximately 9.1%, with limited new deliveries anticipated in the coming years. At the same time, a large number of drilling platforms, FPSOs, and marine support vessels have entered the aging phase, resulting in high costs for reactivation and upgrades. The continuous recovery of AHTS and PSV rental rates and subsea equipment service prices has confirmed the improvement in the industry's supply-demand landscape. Industry Chain Aspects Drilling platforms benefit from increased utilization and rising daily rental rates, ensuring the most thorough supply clearance and offering stronger profitability and asset revaluation elasticity; subsea production systems benefit from the increased number of deepwater projects, EPCI order backlogs, and rising equipment service prices, leading to higher order visibility and profit certainty; FPSOs have the highest individual value, with ample projects expected to be awarded between 2026 and 2029, and Brazil, South America, and Africa are anticipated to become major areas for order growth. Key Investment Directions Drilling Platform Sector: Focus on companies with marine engineering platform construction and assembly capabilities, as well as drilling equipment companies benefiting from the maintenance, upgrades, and reactivation of existing platforms, such as China International Marine Containers (A), China Oilfield Services, etc. Subsea Production System Sector: Focus on companies with marine engineering EPCI and installation and operation capabilities, as well as core component suppliers for subsea equipment, such as Nanjing Develop Advanced Manufacturing, Shanghai SK Petroleum & Chemical Equipment Corporation, Sinopec Oilfield Equipment Corporation, Offshore Oil Engineering, Dezhou United Petroleum Technology Corp., etc. FPSO Sector: Focus on companies with FPSO hull, upper module, and engineering general contracting capabilities, such as China International Marine Containers (A), BOMESC Offshore Engineering, Offshore Oil Engineering, etc. Risk Warning: Ongoing increases in raw material prices; risks of oil price fluctuations; FID for deep-sea projects falling short of expectations; challenges in executing and collecting payments for overseas projects.