Jefferies has published a research report initiating coverage on China Oilfield Services Limited (ASX: 02883) with a "Buy" rating and a target price of HK$11. The firm believes the market is underestimating the durability of the current upcycle in offshore oil and gas activity, and it continues to view the company primarily as a drilling contractor, despite its increasingly robust earnings structure driven by oilfield services and its growing competitive edge.
The report highlights that China Oilfield Services Limited is strengthening its competitive position, evidenced by industry-leading rig utilization rates, demand that supports fleet expansion during the "15th Five-Year Plan" period, and its steadily broadening in-house oilfield services capabilities. On the international front, the company is expanding from cable logging and cementing into completion services, which is expected to enhance earnings quality and solidify its standing among global supplier lists.
Regarding the Middle East, revenue from the region accounts for less than 10% of the company's total, and all five offshore rigs operating there are functioning normally, meaning any direct impact on earnings is limited. Supported by long-cycle offshore contracts, the firm believes the company remains resilient under both scenarios of escalating or de-escalating Middle East tensions. The report concludes that the company's valuation remains below that of other offshore drilling firms and oilfield service peers, and it expects that its enhanced service competitiveness and long-cycle earnings visibility will drive a valuation re-rating.