The Block B-O Mon project

The Brent oil price remained high at USD104.9 per barrel on average in 1H22, up 61% YoY due to geopolitical tensions between Russia and Ukraine and concerns about Western sanctions against Russia. Besides, OPEC cut oil production by 2 million barrels per day to shore up prices, defying U.S. pressure. The Brent oil price dropped to USD 90.81 per barrel, but remained at a high level.

KBSV keeps the view that Brent oil prices for the rest of 2022 will likely remain around USD100 per barrel because 1) the tensions between Russia - Ukraine are not likely to be resolved soon; and 2) crude oil demand recovers strongly as winter—the peak season for crude oil and gas demand—is approaching.

Regarding the progress of the Block B-O Mon project, the main gas-using project, O Mon III, has been delayed for many years due to higher-than-expected investment costs and the Japanese government's unwillingness to expand the scale of ODA loans required to complete the project. The delay in the key downstream project has caused upstream projects to be delayed for quite a long time.

However, in August 2022, the O Mon III gas-fired thermal power plant—an important downstream component of the Block B megaproject—was approved for investment. This is the largest project in the oil and gas industry with an average annual supply of about 7 billion m3 of gas, accounting for about 75% of the current annual gas output of PV GAS (GAS).

Mr. Tran Duc Anh, Head of Macro & Strategy at KB Securities, believes that the approval of O Mon III thermal power plant will be the first step towards speeding up the approval of the entire Block B project when the final investment decision (FID) is likely to be made in 4Q. This created a positive outlook for upstream enterprises in the oil and gas industry.

The Brent oil price dropped to USD 90.81 per barrel, but remained at a high level.

"We maintain our view that GAS is the leading oil & gas stock thanks to benefits from the selling price, which is directly correlated with the increase in oil prices, and Vietnam's shift to using natural gas and imported LNG for production to meet the long-term shortage of electricity demand. GAS's 2022F profit should recover as gas prices benefit from world oil prices with a base assumption of USD100 per barrel, compared to an average of USD70 per barrel in 2021", said Mr. Tran Duc Anh.

Petrolimex (PLX) will be self-sufficient in finished petroleum products after importing a part of its input petrol for spot price instead of contract price, making 2Q business results be negative. Mr. Tran Duc Anh believes that the independent input and divestment from PGBank at the end of 2022 will support PLX's business results in the last months of 2022.

Binh Son Refinery (BSR) will continue to be positive in 2022 although crack spread has shown signs of cooling down in 2022 due to the low comparative base of 3Q and 4Q21. In addition, Vietnam's uncertain petroleum demand and the lack of stable operations in Nghi Son Refinery are advantages for BSR’s finished petroleum production & distribution.

"PV Transportation (PVT) will benefit from the Russian embargo, which will create a gap between the supply and demand of crude oil and finished petroleum products in Europe and lead to higher demand for alternative sources to replace Russia in late 2022 and 2023. In addition, we expect one-time earnings from vessel liquidation to be a short-term driver for PVT in 2022", Mr. Tran Duc Anh forecasted.

For two upstream plants, PV Drilling & Well Services (PVD) and PV Technical Services (PVS), high oil prices (at more than USD55 – also the breakeven point of the industry in the region) will help brighten the outlook. Although the 1Q22 business results are not very impressive, Mr. Tran Duc Anh expects the new high oil prices will have a positive impact on these two businesses. For PVD, he sees an improvement in both rig performance and daily rig rental rates in Southeast Asia, and the company is starting a long-term contract on a TAD rig in Brunei after four years of idle time. As a result, PVD should have better results in 2H22. For PVS, the company is in the process of bidding for EPC projects with positive progress, which, when combined with high oil prices, should support earnings from FPSO and FSO joint ventures. In addition, the resuming of the Block B project will be a short-term driver for the two oil and gas stocks.