Citigroup: Oil and gas field extraction scale shows a growth curve, US oil service sector will see a rebound

According to the Zhitong Finance APP, Citigroup, a major Wall Street bank, recently released a research report stating that large oilfield service companies (OFS) seem to face a certain degree of business weakness in 2025, primarily due to reduced activities in the Gulf of Mexico and deepwater operations. Citigroup noted that while the extent of the reduction in investment spending in the Gulf of Mexico is difficult to predict, the agency has emphasized in its annual outlook that the forecast for capital spending in overseas markets is misleading, as the industry needs to absorb inflationary pressures. However, the recent decline in the stock prices of large oil service companies largely indicates that the market has already priced in a business downturn. Therefore, based on conservative expectations for oil service capital spending and the long-term capital expenditure plans of some major clients, oil service stocks in the U.S. market may trend towards a rebound in the near term rather than further decline.

Thus, a decline or stabilization in fixed capital spending indicates a lower overall level of business activity in the oil service industry. However, Citigroup stated that given that stock prices have already reflected the recent slump in capital spending, it is worthwhile to take a long-term investment perspective. In particular, the continued strong spending and renewed commitments from European International Oil Companies (IOCs), U.S. IOCs, and Petrobras (PBR) indicate that important clients maintain stability in long-term spending.

In terms of oilfield service companies, Citigroup has given "buy" ratings to Baker Hughes (BKR.US), Halliburton (HAL.US), Schlumberger (SLB.US), and Weatherford (WFRO.US).

Citigroup's report indicated that even with Brent crude oil trading around $65, it is unlikely to significantly alter their five-year capital expenditure plans (in comparison, current Brent crude prices hover around $70-75). The Citigroup analysis team stated that the stock prices of large U.S. oil service companies have already reflected about a 20% decline in EBITDA, which also indicates that the long-term spending plan-based outlook within the industry still holds investment value, especially considering clients' long-term spending plans.

Citigroup has compiled updated long-term spending plans from IOCs (including PBR) and found that by 2028, capital expenditures from five major oil companies are expected to remain roughly flat from about $70 billion in 2025. The main counterargument is that, from a long-term perspective, Saudi Aramco, the oil and gas giant of Saudi Arabia, has a clear willingness to reduce spending and upstream ratios, which is a double blow. However, part of the long-term cuts may reflect a reduction in infrastructure spending. Among them, drilling and completion (D&C) spending was significantly reduced last year, although some self-elevating drilling rigs may be further cut, investments in unconventional natural gas are expected to increase significantly next year.

Additionally, the Citigroup analyst team stated that given the UAE's capacity expansion plans and new discoveries in offshore oil fields in Kuwait, overall oilfield service spending in other regions of the Middle East should remain healthy in the coming years. Natural gas development in North Africa is also expected to increase in the coming years, bringing new opportunities for oil service companies. Furthermore, extraction activities in Mexico may gradually resume, and they proposed a new five-year plan indicating that annual spending will significantly increase compared to 2024. Citigroup's latest expectations for this spending are relatively conservative, but they anticipate a strong growth trend over several years in 2026/27 In the North American market, Citigroup's analyst team stated that the 2025 spending guidance for oil and gas exploration and production companies (E&Ps) aligns with the institution's expectations. U.S. E&P spending in the oil and gas market is expected to decline by about 5%, while spending in Canada is expected to remain flat. As the Citigroup analysis team recently emphasized, U.S. oil drilling will face risks if oil prices decline further. However, natural gas investment seems to be starting a recovery trend that could last for years. Citigroup stated, as mentioned in last year's in-depth analysis report: "We predict that approximately 80 additional large natural gas drilling rigs will be needed to meet the demand of about 20 billion cubic feet per day of natural gas and the corresponding export growth. If oil prices stabilize during this period, it will drive a moderate improvement in U.S. oilfield service activity."