Oilfield services and Middle Eastern conflict

12 March 2026

• The upcycle is real, backlogs are strong and geopolitics has bolstered the case for investment
• Oilfield services stocks are cheaper than the European market average, with potential for higher and more durable growth

The backdrop is well-trodden by now: according to various industry estimates compiled by Morgan Stanley, global oil and gas capital expenditure (CapEx) has recovered by up to 60% from its 2020 lows and is expected to stay strong.¹ They estimate that Internal Rates of Return (IRRs) are still sitting comfortably around 20% despite cost inflation.² The cycle is showing up in order books and results, with the recent results season underlining the trend. Amid geopolitical uncertainty, there are signs that energy security is beginning to take precedence over the energy transition.

US and Israeli strikes on Iran have temporarily rattled the stocks - which is fair for near-term logistics - but more important is the bigger picture: every geopolitical shock of this kind appears to sharpen the minds of energy ministers in Europe, Japan and Korea on the need to lock in sovereign supply. That means more liquefied natural gas (LNG) capacity, more deepwater development, more pipeline replacement. In other words, this backdrop arguably points to more work for the oilfield services companies - including names such as Saipem and SBM Offshore. Based on Bloomberg consensus data, both stocks trade on free cash flow yields in the teens, which we believe is a strong underpinning. Should the market gains confidence in cycle strength and duration, there could be scope for upside risk to orders, earnings and cash flow estimates, with the potential for re-rating.

Chart 1: FCF yields – Oilfield services

What management teams are saying across the value chain

Here is a selection of top quotes from management teams in the recent reporting season.³ They cover the full value chain:

• Drilling and well construction - the steel tubes and premium connections that go downhole (Vallourec, Tenaris)


• Subsea production systems - trees, manifolds and umbilicals⁴ that sit on the seabed and connect the reservoir to surface (TechnipFMC)


• Subsea and offshore installation - heavy-lift vessels and marine construction that lay pipelines, install platforms and tie back subsea infrastructure (Saipem, Subsea 7)


• Floating production - FPSOs⁵ that sit above deepwater fields, processing and storing oil before offloading (SBM Offshore)


• Ageing infrastructure maintenance and replacement - life extension, platform deck upgrades and pipeline replacement on fields built in the 1970s and 80s (Saipem)


• Onshore LNG liquefaction and gas processing - the giant plants that convert natural gas into exportable LNG (Technip Energies, Maire)


• LNG shipping technology - the proprietary membrane systems inside virtually every LNG carrier that keeps the cargo at -162°C (GTT⁶)

SBM Offshore

"We are entering 2026 with discipline and momentum... the market outlook remains very positive... we are well positioned in a strong deepwater market and with capacity free, we are ready to grow our market share."

"As supply from existing fields naturally declines over time, new developments and especially deepwater FPSOs will be required to bridge the supply-demand gap... the expectation is that for the remainder of this decade, 35% of new oil production is expected to come from deepwater developments."

Saipem

"The works that we are getting are not linked to new field development, but basically what I call production maintenance of existing fields — and that is generating a sort of constant demand."

"Many works we get awarded are replacement of old pipelines, replacement of old platforms, old decks, upgrade of decks... all those facilities have been developed basically from the '70s and they are now aging and they need maintenance and sometimes they need full replacement. That's where we see a steady demand in the Middle East."

"The medium-term outlook remains very good. National oil companies — especially in the Middle East — are far less subject in their investment decisions to the volatility of the price of commodities. And we now also see international oil companies coming back, having postponed their final investment decisions from 2025 to 2026. The outlook is really promising."

"Our construction vessels are fully booked for 2026 and we are steadily increasing the level of utilization for the following years."

Technip Energies

"The investment cycle in gas and LNG will continue well into next decade, with focus shifting from oversupply concerns to risks of further future undersupply... We are in a period of sustained structural demand for our capabilities."

"Natural gas plays an indispensable role here. No gas, no grid stability — and with no grid stability, no renewables scale-up."

"We anticipate reaching our highest ever annual order intake in 2026... We are confident that 2026 will establish new highs with potential to reach EUR 24 billion of backlog. This milestone will provide us with one of the most exciting execution pipelines in our history."

GTT

"For geographic reasons as well as geopolitical reasons — really core geopolitical reasons — you will see less and less pipelines and more and more liquefaction, to provide greater flexibility and greater security of supply to the consumers."

Vallourec

"Drilling and well costs represent up to 80% of total [geothermal] cost — significant improvements in drilling speeds are dramatically improving project economics... We are already experiencing a significant increase in our geothermal bookings."

Subsea 7

"Our backlog for '26 is reasonably clear to us, '27 is filling out nicely, and we are currently bidding a number of projects for '28 and some even going into '29. The discussions we're having with our clients is around how they get access to the global enablers into '28 and '29."

TechnipFMC

"There are multiple new frontiers under consideration for greenfield development, more than at any time I can remember... reinforcing our confidence in continued strength in offshore activity through the end of the decade and beyond."

"We expect a greater share of capital spending to move offshore, where reservoirs are prolific, high quality and accessible to many operators with attractive project economics that continue to improve... Our Subsea Opportunities list now highlights approximately $29 billion of opportunities — the highest level ever recorded."

Tenaris

"When we look at the estimate of investment in deep offshore for '27 and '28, the numbers are showing levels of investment in the range of $120 billion in '28 — almost 3x some of the low-end years in the past 2-3 years. Long term, looks very promising."

Maire

"Geoeconomic confrontation is today at its highest level in decades, and energy agendas are increasingly defined at regional and national level... energy security and industrial policy are key drivers. Gas is due to remain the pillar of energy for the future."

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team here.