The conflict in Iran has gone on for over two months. And even though a ceasefire has been in place since April 8, there is still no clear end to the conflict in sight.

As a result of the fighting, activity in the Strait of Hormuz, a vital maritime transport corridor where 20% global oil supplies and a significant volume liquefied natural gas pass through, has remained well below pre-war levels.

Prior to the conflict, roughly 120 vessels passed through the strait daily. Once the fighting kicked into full swing, crossings dropped by a huge margin. In the entire month of April, only 191 ships were reported to have passed through the strait.

And with a significant portion of oil production choked off, prices have risen sharply. Pre-conflict oil prices hovered at roughly $80 per barrel. But now, Brent crude is currently priced at around $114 per barrel.

With the resulting oil supply shock roiling global markets, oil and gas majors now have more incentive to look for sources of oil, preferably, those located outside the Middle East.

Exxon Mobile (XOM) recently revealed that it was looking into investing in Nigeria’s deep-water oil fields. Meanwhile, BP (BP) acquired stakes in oil blocks located in Namibia. According to one estimate, oil majors could derive roughly $120 billion in value from their exploration efforts in the next few years.

As the search for alternatives intensifies, offshore drilling is becoming an increasingly attractive option. And one of the companies that stands to benefit from renewed interest is Oceaneering International (OII).

Oceaneering International is an engineering solutions and equipment company that has historically catered to the offshore oil and gas industry. The company has expanded its presence to the defense, material handling, aerospace, renewable energy, and science industries.

At present, the firm has multiple operating segments. Subsea Robotics (“SSR”) houses the company’s underwater robotics and automation, remotely operated vehicles (“ROV”), ROV tooling, and survey and positioning services businesses. SSR also enjoys a 60% market share in the ROV drill support market segment.

Meanwhile, Manufactured Products covers manufacturing, project management, product and development, for energy and industrial customers. The Offshore Projects Group (“OPG”) specializes in subsea engineering, installation, repair, and maintenance.

Integrity Management & Digital Solutions (“IMDS”) offers software and analytics solutions for the management of offshore assets. Lastly, Aerospace and Defense Technologies (“ADTech”) is the segment that specializes in subsea solutions, maritime operations and technology, and space flight operations.

Oceaneering has historically been exposed to the cyclicality of offshore oil and gas. However, in recent years, it has made strides in diversifying its revenue mix. SSR, which enjoys a strong market share, has been the primary revenue generator

Last year, the company generated $2.8 billion in revenue. 31% came from SSR, 22% from OPG, 20% from Manufactured Products, 17% from ADTech and 10% from IMDS.

Oceaneering’s management have expressed that ADTech—which has recently seen contract awards amounting to $175 million—will be the company’s key growth driver moving forward.

Company management’s confident stance in this operating segment isn’t unfounded. The Defense Department recently requested $1.5 trillion for its FY 2027 budget. And in this proposal, the Navy requested $65.8 billion in funding for shipbuilding activities, a 242% jump from the $27.2 billion that was approved for FY 2026. Given Oceaneering’s expertise and offerings in maritime operations, it stands to benefit from additional naval spending.

In sum, Oceaneering is poised to benefit from both the renewed interest in offshore drilling and potential windfall in military shipbuilding activities.

If these potential tailwinds materialize, then the company’s stock warrants upside.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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