Oil services sector: What Soros’ model suggests for 2025

Investing.com — Oil services stocks could be entering 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 start of phase 4, which has historically aligned with strong equity returns driven by the 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 being at the beginning of phase 4,” Bernstein analysts led by Guillaume Delaby note.

The fourth stage, they explain, “tends to be very attractive for equity returns, as it results from the divergence between: 1) a fast-improving economic reality; and 2) still-quite-low investor expectations.”

“So, we would expect a still-strong performance for (mainly European) OFS shares in 1Q25 and possibly 2H25,” analysts added.

Bernstein anticipates oil and gas exploration and production (E&P) spending to have increased by around 5% in 2024, reaching roughly $600 billion. Offshore activity saw stronger growth, climbing 8% to $250 billion, while onshore investment rose just 1% to $350 billion.

For 2025, oil and gas capital expenditures are projected to rise modestly by 1-2%, to approximately $610 billion. Offshore spending is forecast to grow by 3-4%, hitting $260 billion, with onshore outlays expected to remain flat.

“Subsea remains the most attractive segment,” the analysts highlight, citing “visible long-term demand, a duopolistic/oligopolistic structure, a lack of available vessels, and visible margin progression.”

They also point to potential upside surprises in gas and LNG projects by late 2025 or early 2026, as well as higher capex in the Middle East over the 2026-2027 period. However, they caution that the outlook for North America remains less clear.

In terms of investment recommendations, Bernstein highlights Saipem (BIT:), ADNOC Drilling (ADX:), ADNOC Logistics & Services (L&S) (ADX:), and SBM Offshore NV (AS:) as its top picks, joined by Technip Energies BV (EPA:), which they view as “the only genuine growth stock in the sector.”

Saipem is expected to begin the year with a €35 billion backlog, with its fleet fully booked through 2026 and half of 2027’s capacity already secured.

In the Middle East, Adnoc Drilling is positioned to benefit from a $1.7 billion contract to drill up to 144 unconventional wells ahead of 2026.

Adnoc L&S, meanwhile, is expected to double its shipping segment’s revenue with the consolidation of Navig8 and expand its Integrated Logistics segment through significant capex initiatives.

Lastly, SBM Offshore could capitalize after shifting its business model towards lower capital intensity, focusing more on operations and maintenance, Bernstein explains.