Offshore oil and gas exploration spending is expected to rebound significantly after facing the challenges brought on by the COVID-19 pandemic that crashed global oil demand. According to oilfield service major SLB (SLB Quick QuoteSLB - Free Report) , worldwide outlay on offshore energy exploration is likely to go up more than 20% in 2023 and further strengthen in the years to come. We expect this growth to drive activity, and that, in turn, would translate into opportunities for equipment providers like SLB as well as offshore drillers like Seadrill Limited (SDRL Quick QuoteSDRL - Free Report) and Transocean (RIG Quick QuoteRIG - Free Report) .

Offshore Exploration Set to Get a Leg Up

Speaking at the J.P. Morgan Energy, Power & Renewables Conference, SLB CEO Olivier Le Peuch predicted that this year alone, 65 lease rounds would be concluded worldwide to go with the open-door policies adopted by several other countries, highlighting the momentum in activity. In the 2022-2025 period, the Houston, TX-based company sees the final investment decision on global projects to exceed $500 billion, with 40% of that spend (around $200 billion) going to deepwater — a 90% jump compared to the 2016-2019 period.

Growth areas include large-scale developments in regions such as Guyana, Brazil, and the Middle East. Furthermore, newer offshore frontiers like Namibia, Tanzania, Colombia, India, and the East Mediterranean are expected to experience a fresh wave of exploration and appraisal.  

Stocks to Benefit

Let’s look at some of the beneficiaries from this offshore exploration boom:

SLB: SLB is a leading oilfield services company, providing services to the oil and gas explorers, and producers across the world. Through oilfield services contracts, SLB helps the upstream energy players to locate oil and gas, and to drill and evaluate hydrocarbon wells.

The world’s largest oilfield services provider should get a considerable boost from the increase in offshore exploration. In fact, around half of SLB’s international revenue could be attributed to the offshore business. Therefore, a positive market dynamic will lead to growth in the company’s well construction, reservoir performance, and production systems units. In other words, the resurgence in offshore activities is expected to improve SLB's business and contribute to its continued growth.

Seadrill: Seadrill is a market-leading international driller with strong exposure in key strategic basins like the U.S. Gulf of Mexico, Brazil and Angola. SDRL has transformed its capital structure through accretive transactions and continues to deliver operational excellence.

The leading offshore contractor is poised to benefit from the revival in offshore exploration and spending. The Zacks Rank #1 (Strong Buy) company's sophisticated fleet of drilling rigs, together with its operational efficiency, positions it nicely to secure contracts in the expanding offshore market. With exploration activities ramping up across regions, Seadrill stands to capture new opportunities and generate significant revenue.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Transocean: Switzerland-based Transocean, Inc. is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company provides rigs on a contractual basis to explore and develop oil and gas.

Quite clearly, Transocean, with its modern and versatile fleet, stands to gain from the anticipated growth in offshore spending. The company is well-positioned to provide its services amid the increasing demand for offshore exploration services. In particular, RIG's expertise in engaging in high-specification drilling jobs makes it an ideal partner for energy firms embarking on offshore projects.