The potential for conventional oil and gas extraction has declined, and shale oil and gas will become the main force for increasing storage and production in the future

Domestic oil production mainly depends on a few large oil fields such as Shengli Oilfield and Daqing Oilfield. The extraction cost per barrel of oil is as high as 50-60 US dollars. As the mining potential of the Eastern Oilfield has declined in recent years, it will be difficult for conventional oil and gas to meet the growing domestic energy demand, and the general trend of unconventional oil and gas development is trending.

In 2023, China's annual shale oil production exceeded 4 million tons, achieving rapid growth for many years. Shale oil production increased from 0.4% in 2018 to 1.9%, an increase of 1.5pct; in 2015-2023, China's shale gas production increased from 4.5 billion cubic meters to 25 billion cubic meters, the CAGR reached 24%, and the share of output increased from 3.5% to 10.9%. The position of shale oil and gas in China's energy structure is becoming more and more prominent. Looking forward to the future, in the context of China's deep guarantee of energy security, we believe that shale oil and gas will become an important support for increasing China's oil and gas storage and production.

The tenders for electric drive fracturing equipment were mainly CNPC, and Jerry is expected to maintain a record of total victory with technical advantages

Judging from public tenders for domestic fracturing equipment, the current tenders for electric drive fracturing equipment are dominated by CNPC. Electric drive fracturing equipment accounts for more than 70% of the total fracturing equipment tenders in the 2023 oil tenders. According to public information from the CNPC Tendering and Bidding Network on December 6, Jerry Co., Ltd. became the first candidate to win the bid for CNPC's 2 batches of 3 sets of electric drive fracturing equipment in the second half of '24. If Jerry successfully wins this order, it will maintain the record for winning the CNPC electric drive fracturing equipment purchase order. Specifically, due to China's poor endowments in shale oil and gas resources, the quality requirements for equipment are high, and failure to meet technical standards will significantly affect mining efficiency. As a leader in domestic cementing and fracturing technology, Jerry Co., Ltd. has significant technical advantages in the field of electric driven fracturing equipment. In the CNPC fracturing equipment centralized procurement project in the second half of 2024, the Jerry/Siji/Sanyi/Baoji Electric Drive Fracturing Equipment technology score was 96/86/72/78.2, respectively. Jerry Equipment has a clear technological lead. Looking forward to the future, benefiting from unconventional oil and gas development and electrification trends in the domestic market, Jerry Co., Ltd. is expected to continue to benefit.

Chinese equipment went overseas with EPC turnkey, and Jerry's Middle East market layout entered a harvest period

Since successfully completing the KOC 2.7 billion yuan project in 2023, Jerry has successfully established brand awareness in the Middle East region, and 2024 ushered in a large-scale EPC contract harvest period. (1) In May, Jerry and Central Iraq Oil Company signed a preliminary contract for the development of the Mansuriya gas field; (2) in September, Jerry signed a general contracting project contract for 7 gas booster stations (total amount 2.2 billion yuan, core equipment about 1.1 billion yuan); (3) In November, Jerry received an award letter (estimated amount of 6.6 billion yuan) for the EPC project for the digital transformation of the ADNOC well site in the UAE. Large-scale EPC projects in the Middle East high-end oil service market continue to win bids, demonstrating the high trust of international high-end oil companies in Jerry's equipment manufacturing and project general contracting capabilities. As equipment & EPC overseas orders continue to be fulfilled, the company's long-term brand strength is expected to be strengthened, and overall profitability and cash flow are expected to continue to improve.

Profit forecast and investment rating: We maintain the company's 2024-2026 net profit forecast of 2.7/3.3/3.7 billion yuan, and the PE corresponding to the current market value is 13/11/9x, maintaining a “buy” rating.

Risk warning: Oil and gas capital expenditure falls short of expectations, fluctuations in international oil prices, and frictions in international relations.