A recent analysis suggests that a surge in offshore oil and gas development is on the horizon, fueled by a tight global supply-demand balance and growing energy security concerns. The report indicates that the anticipated increase in China's offshore capital expenditure over the next two years will directly convert into a robust pipeline of orders and stronger earnings for oilfield service companies. However, the benefits are not expected to be evenly distributed across the industry, with firms possessing core competitive advantages, particularly those achieving breakthroughs in deepwater technology, set to capture outsized growth.

Domestically, the outlook is particularly bright for upstream oil and gas companies poised to boost their capital spending, with Dongxing Securities Corporation Limited highlighting entities with high growth potential, including those in the oilfield services and development space, which are well-positioned to ride this wave of investment.

Where the Growth Is

The recovery of the domestic economy is steadily increasing the demand for oilfield engineering services, which is translating into stable financial performance. Data from 2026 shows the manufacturing PMI fluctuating around the 50.0% threshold, with figures of 49.3%, 49.0%, 50.4%, 50.3%, 50.0%, and 50.3% recorded from January to June. Reflecting this stability, the sector's total revenue for 2025 reached RMB 320.202 billion, a 3.01% year-on-year increase, with net profit attributable to shareholders growing 2.18% to RMB 11.154 billion. In the first quarter of 2026, revenue stood at RMB 63.307 billion, a slight 0.16% dip from the same period last year.

Capital Spending to Accelerate, Boosting Offshore Service Demand

While global upstream oil investment faces pressure, offshore oil and gas is emerging as the core and primary engine of global hydrocarbon investment. This is occurring against a backdrop of energy transition expectations, strict capital discipline at major oil companies prioritizing shareholder returns, and geopolitical uncertainties, which have prompted a re-evaluation of upstream priorities. The IEA's World Energy Investment Report for 2026 projects that global oil company investment will fall below $500 billion this year.

In stark contrast, offshore oil and gas investment is growing counter-trend, becoming the main growth engine. High-quality asset returns, particularly in deepwater and ultra-deepwater fields, are positioning this segment as a safe haven for investment. According to data from the China National Offshore Oil Corporation's Energy Economics Institute, global offshore exploration and development investment has grown for five consecutive years, with 2025 figures expected to reach $217.55 billion, accounting for 35.7% of total global investment and a compound annual growth rate of 11%. This momentum is set to continue, with 2026 investments projected to grow over 3% year-on-year, representing about 36% of the global total.

Rising domestic demand for oil and gas imports and the significant potential for increased offshore production are key drivers of this upstream spending. China's oil imports hit 685.66 million tonnes in 2025, a 3.16% increase, while domestic oil demand continues to climb annually.

Production Growth and High Capex to Drive Industry Momentum

China's offshore oil and gas output has sustained steady growth for three consecutive years. In 2025, offshore oil production is estimated at around 68 million tonnes, a year-on-year increase of about 2.5 million tonnes, which accounts for nearly 80% of the nation's total oil production increase. Offshore natural gas output reached approximately 30 billion cubic meters, up by 4 billion cubic meters. Looking ahead to 2026, output is expected to remain robust, with oil production projected at around 69 million tonnes and natural gas to potentially exceed 32 billion cubic meters.

The high level of investment is set to persist, with China's offshore oil and gas capital expenditure maintained at a substantial RMB 125-135 billion per year for 2025 and 2026. The market size for China's offshore oil and gas development is projected to expand dramatically, from approximately RMB 1.2 trillion in 2025 to RMB 2.8 trillion by 2030, representing a compound annual growth rate of 10.5%. By the end of the decade, offshore crude oil production is expected to reach 80-85 million tonnes and natural gas output to hit 45-50 billion cubic meters, with deep-sea resources acting as a critical growth engine.

High-Growth Beneficiaries in the Upstream Chain

The increase in upstream capital expenditure will directly expand the workload and secure earnings growth for oilfield engineering companies. Since 2018, when efforts were intensified to boost domestic exploration and production, companies like CNOOC Limited have pursued ambitious seven-year action plans. CNOOC's capital expenditure reached RMB 132.7 billion in 2024 and is expected to remain at high levels of RMB 120.5 billion and RMB 112-122 billion in 2025 and 2026 respectively. This scale of mandatory investment provides a strong order baseline for the entire oilfield services chain, ensuring high market activity for the next two years. The company's annual oil and gas production target is set between 780 and 800 million barrels of oil equivalent, with unit operating costs reduced to $27.9 per barrel in 2025, demonstrating strong resilience to cyclical downturns.

The direct impact of CNOOC's increased spending has been the synchronized revenue growth of its three main oilfield service subsidiaries, highlighting the close, symbiotic relationship within the industry. Data from 2022 to 2025 illustrates this strong growth:

China Oilfield Services Limited (COSL): Driven by technological breakthroughs and a boom in drilling activity, its operating revenue grew from RMB 35.659 billion to RMB 50.282 billion, with net profit rising from RMB 2.359 billion to RMB 3.842 billion. In 2025 alone, COSL achieved a 4.10% year-on-year revenue increase to RMB 50.282 billion.

CNOOC Energy Technology & Services Limited: Benefiting from industrial chain synergies and a focus on oil extraction equipment, its revenue climbed from RMB 47.784 billion to RMB 50.363 billion, with net profit increasing from RMB 2.416 billion to RMB 3.884 billion. In 2025, the company saw a 4.46% year-on-year revenue increase to RMB 50.363 billion.

Over the next five years, China's offshore oil and gas capital expenditure is not only expected to remain at high absolute levels but also demonstrate strong upward trends in deepwater equipment orders, drilling day rates, and cost reductions through localisation. This ensures that the business volume for oilfield engineering companies will increase further, making their earnings growth prospects highly certain.

Risk factors to consider include geopolitical risks, the potential for significant energy price fluctuations, and the risk of demand falling short of expectations.