OUTLOOK 2020
OIL & GAS
© RESEARCH DEPARTMENT ǀ JUN 2020
TABLE OF CONTENTS
2
1 GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT
“TECHNOLOGY”
2 VIET NAM OIL & GAS: HOPE!
3 STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE
© RESEARCH DEPARTMENT ǀ JUN 2020
© RESEARCH DEPARTMENT ǀ JUN- 2019 3
GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT “TECHNOLOGY”
VIET NAM OIL & GAS: HOPE!
STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE
© RESEARCH DEPARTMENT ǀ JUN - 2020 4
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
“SUPPLY versus DEMAND” - What is the key?
Source: VCBS, World Bank
-4.5
-5.6
-4.1
-4.3
-2.3
-1.5
-0.9
-1.2
-5.7
-6 -4 -2 0
Arab oil embargo (Oct 1973 -…
Iranian revolution (Nov 1978 -…
Iran-Iraq war (Oct 1980 - Jan 1981)
Kuwait invasion (Aug 1990 - Jan…
Iraq war (Mar - Dec 2003)
Libyan civil war (Feb - Oct 2011)
Sanctions on Iran, first (Nov…
Sanctions on Iran, second (Jul…
Saudi attacks (Sep 2019)
Conflict – Driven Oil Supply Disruptions
-15
-10
-5
0
5
10
15
20
30
40
50
60
70
80
90
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-0
1
Jan
-01
Mar
-01
May
-01
Jul-
01
Sep
-01
No
v-0
1
Jan
-01
Mar
-01
May
-01
Brent Oil Movement
(+/-) US's Inventories Brent Price 2018 Brent Price
2019 Brent Price 2020 F Brent Price
USD/bbl Mn bbl
-10
-8
-6
-4
-2
0
202
0
198
0
198
1
198
2
197
4
200
9
197
5
200
8
198
3
199
3
Global Oil Demand Plunges Percent
In 2019, Brent Oil price fluctuated continuously within a narrow range even though it underwent several events, one of which was considered the worst nightmare in historical
milestones of the OIL Industry. However, 2020 has deserved to be a black swan year of the OIL & GAS industry when Brent's price dropped sharply by 40% YTD from 50 USD /
barrel to 30 USD/ barrel due to (1) the oversupply continuing to loom after COVID 19 pandemic, (2) Crude Oil future prices dipping below zero as producers were forced to pay
to dispose of excess in maturity. VCBS has warned the risk of global oil industry in our latest 2019 report.
VCBS realized demand factors gradually had more effect on Brent price movement than supply factors. Let us take a look at the event of the Saudi attack which disrupted the
supply, immediately lifting oil price immediately up to USD65/barrel then sharply falling back to where it began. Moreover, COVID 19 pandemic also placed negative influences
on the global oil demand, double striking on oil price. If we drag the oil price in consideration period, we could recognize the oil industry stepped into maturity stage in its life
cycle.
© RESEARCH DEPARTMENT ǀ JUN - 2020 5 5
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
Whether Oil price has entered Recession stage
0
20
40
60
80
100
120
140
160
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
US
D/b
bl
Brent Oil Movement
Brent Oil 2H.2020 Brent Price
Take a look at 30 years of the Brent oil industry, The oil price moved in a sideway in the first 10 years (1988 – 1998) prior to experiencing an escalation, recording all time high
of approximately USD140/barrel over the course 10 years starting from 1998. The boost in oil price was attributable to the rapid growth of Chinese economy which reached the
second place in size, following the US. However, later on until now, the Brent price volatility appeared to be more frequent. In detail, VCBS reiterate that the global oil recession
in 2015 which resulted from the U.S’s shale oil extraction changed the Oil game entirely. After this extraction technology was found by the U.S, conflict has spread among key
players including OPEC and Non – OPEC, which leaves open the possibility that oversupply may take place any time.
There is a key rationale in favor of the view that Oil Supply strongly relates to political geography which leads to the uncertainty & unpredictability. As a result, we focus more
on demand factors in our forecast. In the next slide, VCBS will introduce the recent situation of the global oil industry in terms of demand.
Source: VCBS, Bloomberg
© RESEARCH DEPARTMENT ǀ JUN - 2020 6 6
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
Global primary energy demand plateaus around 2030, primarily driven by the penetration of the renewable energy
1850 1900 1950 2000 2050
Fossil Fuels
650
571
CAGR %
1.7 0.9
2.9 1.9
0.8
0.1
+14%
0
100
200
300
400
500
600
700
2016 2025 2035 2045
32%
23%
20%
25% 34%
22%
29%
14%
According to IEA & McKinsey information, the renewable energy which is considered a substitute for fossil fuel with low efficiency is gradually replacing the oil position as the
main source of energy. Renewables, complemented by nuclear, will almost double their share in the global energy sources from now until 2050 (from 19% to 34%), providing more
than half the electricity output by 2035.
Oil demand has grown by more than 1% pa over the last three decades, but this growth is expected to slow down significantly from 2020 onward. In detail, the deceleration will be
mostly attributable to the decrease in demand for road transport. Triggered by increasing adoption of EVs, oil demand for road transport should peak in 2025 and decline afterward.
By 2050, demand is projected at -30 million barrels per day MMb/d, which is one third below today’s demand levels.
Global primary energy demand (TJ)
Industrialization of
Western economies;
biomass was the main
source of energy
Expansion of transport
vehicles fueled by coal and
oil
The rise of EC, oil played
as key input for thermal
power plant
Rising
China
Fast uptake of
renew-able in the energy
mix
Primary energy demand per fuel
Million TJ
Share
in 2035
Share in
2050
Renewables and other fuels
Gas
Oil
Coal
Source: IEA, McKinsey
© RESEARCH DEPARTMENT ǀ JUN - 2020 7 7
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
The collapse of largest segment: Transport
Upcoming years see the sharpest drop in oil demand from power industry. The more modern human world, the more awareness to environment protection. As thermal power
plants release a great deal of pollutant emission to the air, many countries are shifting their energy industries to renewable segment.
The decline in oil demand for road transport is modest, as electrical vehicles are more popular in OECD countries and China while ICE vehicles are decelerating in the rest of
the world. In additions, technology innovation is reducing the cost of EV production comparing to ICE one.
We expect transportation and chemical industries to have the most significant impact on oil consumption. Until 2035, chemistry should contribute the most to the growth of
global oil demand as a result of dramatic rise in plastics production, particularly in emerging countries. On the contrary, the deceleration in demand for transportation which
consume two-thirds of oil production may outweigh the positive effect of chemistry
65% 8%
6%
2%
19%
Global Oil Consumption, By Sector
Transport Industrial Residential Commercial Other
90
95
100
105
110
115
Demand in
2018
Chemicals Aviation Other
Industry
Other Road
transport
Power Demand in
2035
Oil Demand 2018 – 2035 Increase By Sector
Demand Chemicals Aviation Other Industry Other Road transport Power
Mmb/d
Source: VCBS, McKinsey, World Bank
© RESEARCH DEPARTMENT ǀ JUN - 2020 8 8
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
Technology dramatically changes consumers’ taste
In 2030, global EV sale is expected to reach 23 million while the stock exceeds 130 million
vehicles under the New Policies Scenario (excluding two/ three-wheelers). Under the
EV30@30 Scenario, EV sale and stock nearly double in 2030, reaching 43 million and more
than 250 million respectively.
The expansion of automotive battery production capacity will largely depend on the
evolution of car electrification. This is due to the sale volume of electric cars far exceeding
other modes (except two-wheelers), and the size of their battery packs, which are much larger
for cars than for two-wheelers. There is a growing consensus that the car electrification will
be a pivotal pillar to reduce the unit cost of automotive battery packs since they can facilitate
the availability of lower-cost energy storage. EVs are also likely to be a crucial step for the
transition to a cleaner energy system.
In cost analysis: according to The International Council On Clean Transportation, the lifetime
total cost of ownership of battery electric is forecasted to be attractive as well as its lifetime
cost per mile versus diesel class.
Battery innovation and scale enables the mainstream market in years ahead.
0
0.4
0.8
1.2
1.6
2
0
400000
800000
1200000
1600000
2000000
2020 2025 2030 2020 2025 2030 2020 2025 2030
Diesel Battery Electric Hydrogen Fuel Cell
Estimated Vehicle Component Costs
(USD $)
Vehicle Fuel Maintenance Infrastructure Lifetime cost per mile
0%
10%
20%
30%
40%
0
10
20
30
40
50
2018 2025 2030 2025 2030
New Policies Scenario EV30@30 Scenario
Electric Vehicle Sales
China Europe US
India Japan Other
EV sales share (right axis) PHEV share in Evs (right axis)
Million vehicles
Source: VCBS, IEA, ICCT
© RESEARCH DEPARTMENT ǀ JUN - 2020 9 9
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
The impact of COVID 19 on Global Brent Oil consumption
-12
-8
-4
0
4
8
12
16
20
16
20
17
20
18
20
19
Passenger Vehicle Sales
Global China
%YoY
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Mar
-10
Mar
-17
Mar
-24
Mar
-31
Apr-
07
Apr-
14
TSA traveler journeys
2020 2019Million
Mitigation measures to reduce the spread of the virus have halted a large number of travels globally with a widespread of flight cancellations, increasing stay-at-home orders,
and reducing global trade as well as demand for oil. For instances, passenger journeys through Transportation Security Administration (TSA) checkpoints in the United States
have fallen to around 4 percent of their 2019 level.
Global sale of passenger vehicles, a major barometer of oil demand growth, has continued to fall, particularly in China. Expectations for global growth for both 2019 and 2020
have been revised down substantially, including in emerging and developing economies. Since these economies tend to have a larger income elasticity of demand for
commodities than advanced economies, their slowdown has weighed disproportionately on energy demand.
Source: VCBS, World Bank
© RESEARCH DEPARTMENT ǀ JUN - 2020 10
-2
-1
0
1
2
3
4
Other years Downturns Recessions
Forecasting Brent Price In Each Global Economic
Situation
Interquartile range Median 2020 (f)
%
10
GLOBAL OIL & GAS
The fate of the Energy industry lies in the hands of technology
Brent Oil forecast: Conservative
Oil price are projected to average $42/bbl in 2020
before recovering to $50/bbl in 2021, which is
substantially lower than our forecast in the
previous report.
Regarding demand, we expect a gradual weak
demand as 2nd wave of COVID 19 pandemic
continues to loom.
Concerning supply, the outlook depends heavily
on the production response. In the short-term
companies may continue producing oil, even at
very low prices, because reducing oil production is
challenging. It is very expensive to shutdown or
restart an oil well. Also, the closure of fields is
complicated. As a matter of fact, breakeven prices
for new wells are around $50/bbl on average for
U.S. shale which is substantially higher than the
current price of WTI.
-25
-20
-15
-10
-5
0
5
2018 2019 2020
World Oil Demand, by quater
China Rest of world
Percent, y/y
0
15
30
45
60
75
Cost of production Cost of new well
U.S Shale Breakeven And Cost Of Production
Range Average
US $
-10
-8
-6
-4
-2
0
2
4
April May-June 2020 2020 H2 Jan 2021-Apr 2022
Saudi Arabia Other OPEC
Russia Other non-OPEC
Headline cuts
Mb/d
Source: VCBS, IEA
© RESEARCH DEPARTMENT ǀ JUN - 2020 11 11
GLOBAL OIL & GAS
The Fate Of The Energy Industry Is In The Hands Of The Giant “Technology”
Brent Oil Forecast: Conservative
-14
-12
-10
-8
-6
-4
-2
0
2
80
85
90
95
100
105
Global Oil Supply, Demand, and Inventories
(Million Barrels per Day)
Total Sotck Draw Total World Supply Total World Demand
MODEL
P = -13.4 S + 10.9 D + 4.75 G + 310.6
In which
P: Brent Oil Price
S: Aggregate Global Oil Supply
D Aggregate Global Oil Consumption
G US’s GDP Growth
Assumption
(1): Total global oil supply in 2020 of (S) = 99.3 million barrels per day
(2): Total global oil consumption in 2020 of (D) = 100.3 million barrels per day
(3): US’s GDP growth in 2020 of (G) = - 6.5%
Forecast
Given the Oil price of USD42/barrel, VCBS issues a “CONSERVATIVE”
recommendation for the next 2H.2020.
Source: VCBS, IEA
© RESEARCH DEPARTMENT ǀ JUN - 2020 12
GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT “TECHNOLOGY”
VIET NAM OIL & GAS: HOPE!
STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE
© RESEARCH DEPARTMENT ǀ JUN - 2020 13 13
VIETNAM OIL & GAS
Upstream: Hope!
Block B – Time Line
PROJECT BLOCK B – O MON
Location Block B, 48/95 & 52/97 – Ma Lay – Tho Chu Basin
Investor Phu Quoc POC PVN (42.9%), PVEP (26.82%), Moeco (22.54%) và PTTEP
Reservation 176 billion m3 gas
Capacity 7 billion m3 gas per year
Well – head price ≈ USD10.33/MMBTU
Capex USD7 billion
- Looking forward to
approve FDI .
2020
- Signing PSC contract of Block B,
48/95 & 52/97 (Production Sharing
Contract)
1996 - PVN acquired Chevron’s
stake in Block B
2015 - Prime Minister approved
well – head price
2017 - Prime Minister approved
FDP report
2018 - First Gas
2024
TECHNICAL BLOCK B – O MON
Rigs Barge Drilling
EPCI 1 x CPP, 4 x WHPs, 1 FSO, Internal Pipeline
Downstream GPP Ca Mau, Ca Mau 1 & 2 Thermal power plant - POW
O Mon 1 Thermal power plant – EVN Genco 2
O Mon 2 Thermal power plant – Marubeni
O Mon 3, 4 Thermal power plant – EVN
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 14
VIETNAM OIL & GAS
Upstream: Hope!
The interruption between Upstream & Downstream
BLOCK B – O MON PROJECT
CPP -> KP 209 (209
km)
PM3 Pipeline
An Minh LFP -> O
Mon GDC
KP 209 -> Ca Mau
LFP
Block B CPP
PM3 - CCA
Ca Mau Gas –
Power – Fertilizer
O Mon Power Plants
Upstream Down Stream
Block B – O Mon project has been delayed for a long time mainly
due to the conflict between downstream & upstream players.
Regarding upstream side: Upstream player has their wellhead price
approved at a high level of USD10.33/MMBTU plus an inflation
rate of 2.5% annually which is higher than the natural input price of
existing thermal power plants. On the other hand, the regional LNG
price is lower than Block B wellhead recently, which raises
concerns over the feasibility project.
Regarding downstream side, the pre-FS report is the main problem
which needs to be solved by MOIT. Given the high gas price of
input plus the electricity retail price being under the control of the
government, O Mon I, II, III, IV thermal power plants are facing
difficulty in expanding their gross margin.
In 1Q.2020, Phu Quoc POC did a bidding invitation for EPC of
Block B – O Mon Pipeline. However, VCBS observed that most
downstream projects are facing some difficulties in launching, such
as Capital arrangement, Natural gas purchasing agreement, pre-FS
report, etc. However, as domestic supply of natural gas is under
serious deficit, government should make their effort to launch these
projects soon to revive the local oil & gas market Source: VCBS, PVN
© RESEARCH DEPARTMENT ǀ JUN - 2020 15 15
VIETNAM OIL & GAS
Upstream: Hope!
Blue Whale – Time Line
PROJECT BLUE WHALE
Location Block 118 – Song Hong Basin
Investor Exxon Mobil (64%), PVEP (15%) & PVN (21%)
Reservation 150 billion m3 gas
Capacity 9.7 billion m3 gas per year, 2.8 million tons condensate per year
Well – head price …
Capex USD10 billion
- Looking forward to
approve FDP & FDI
2021
- Signing PSC contract of Blue
Whale (Production Sharing
Contract).
2009 - Signing HOAs (Project
Framework Heads Of
Agreement).
2017 - Completed FEED (Front
End Engineering Design)
2019 Negotiating GGU
(Government Guarantee)
& Dragging PSC’s term
2020 - First Gas
2024
TECHNICAL BLUE WHALE
Rigs Semisub
EPCI 1 x GTP (onshore), 2 x WHPs, Internal Pipeline
Downstream GTP Chu Lai + Mien Trung I & II Thermal power plant -
PVN
Dung Quat I & III Thermal power plant– EVN
Dung Quat II Thermal power plant – Sembcorp
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 16 16
VIETNAM OIL & GAS
Upstream: Hope!
Many Backlog Problems
BLUE WHALE PROJECT
Guarantee Government Undertaking
Blue Whale project has already stepped out of the FEEDs process,
entering the FDP state.
VCBS realized three key - issues which Blue whale has incurred
recently:
(1) MOIT is considering PSC extending term, adding more than 2 years
proposed by ExxonMobil.
(2) MOIT has not approved yet GGU of this project
(3) Deadlock in negotiating natural gas purchase price & electricity
selling price between PVN & ENV
In fact, Blue Whale’s EPC’s segments are offered globally bidding.
The domestic upstream players are not capable of winning from
foreign competitors. Instead, the domestic companies are likely to
act as subcontractors in this project.
Thermal Power Plant
Blue Whale WHP
GTP Plant
Ca Voi Xanh
Offshore Pipeline
Onshore Pipeline
Source: VCBS, PVN
© RESEARCH DEPARTMENT ǀ JUN - 2020 17 17
VIETNAM OIL & GAS
Midstream: Obsolete Technology
Ample additional capacity results in oversupply
0
1
2
3
4
5
6
7
8
2018 2025 2030 2035 2040
South East Asia Refining Capacity
Indonesia Singapore Thailand
Malaysia Viet Nam Other
Net crude oil imports Net oil product imports
Mn Tons/y
-0.5
0
0.5
1
1.5
2
2.5
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Change In Refining Distillation Capacity
Middle East Asia North America
FSU Africa Europe
Latin America Additional Capacity required
MMbbl/day
In response to rising consumption for oil products, there are activities to expand refining capacity in Southeast Asia. Malaysia’s RAPID refinery (300 kb/d) should have started
operation from late 2019. A number of expansion projects at existing refineries are underway, notably in Indonesia, Philippines, Vietnam, and Thailand. Refinery running in
Southeast Asia will increase by two-thirds to almost 7 mb/d between 2018 and 2040. While Singapore is the largest refining central in SEA, other emerging markets such as
Indonesia, Malaysia, and Viet Nam are accelerating. These three nations are expected to contribute 70% of the region’s refining activity growth in the period to 2040.
As you can see in the graph below, the period from 2018 to 2022 saw a rapid growth of refining capacity in Asia & the Middle East especially in the Chinese market. According
to this estimation, VCBS sees a low level of crack spread in the Asia refining market maintaining from 2020 to 2025 until its market requires additional capacity => It has a
large impact on refinery company performance especially in case of 2020 Brent Oil price dropping sharply to below USD35/barrel.
Source: VCBS, IEA
© RESEARCH DEPARTMENT ǀ JUN - 2020 18 18
VIETNAM OIL & GAS
Midstream: Obsolete Technology
Entangled in Capital Arrangement
Nghi Sơn Refinery
Plant
Capacity: 8.4 million
tons/y
Capex: USD9 billion
Input: Heavy Brent Oil
(High API & Sulfur)
Output: Euro III (DO),
Euro II (others)
Dung Quat Refinery
Plant
Capacity: 6 million
tons/y
Capex: USD3 billion
Input: Light Crude Oil
(Low API & Sulfur)
Output: Euro III
(A95), Euro II (others)
Middle
Low High
80%
Although IEA ranked Vietnam among the top highest
growth of refining capacity, Dung Quat expanding
project has been stuck recently due to the problem in
capital arrangement. This project has not been
approved to receive governmental guarantee and
undertaking (GGU) in accordance with current
Vietnamese investment law.
Nghi Son & Dung Quat refinery plants at full
capacity are capable of responding to approximately
80% of aggregate domestic consumption of
petroleum products currently. Given the annual
average growth rate of gasoline & petroleum
products by 5%, Vietnam is not under pressure to
raise the existing capacity.
Although Vietnam has taken part in international
environmental conventions, the quality of local
petroleum products is below the global standards.
Local refineries are capable of meeting Euro III
standards in some specific products meanwhile the
current global standard has reached Euro V.
Ecology Concept
International
convention on
the environment
To handle
Vietnam input
Euro IV & V
C B
A
© RESEARCH DEPARTMENT ǀ JUN - 2020 19 19
VIETNAM OIL & GAS
Downstream: Heavily influenced by COVID 19
Inventory Provisions increase rapidly
Petroleum wholesale enterprises
Industrial Clients
DODOs
COCOs
49%
21%
7%
5%
3% 15%
Vietnam Petroleum Market Share
Petrolimex PV Oil SaiGon Petro Mipecorp Thalexim Khác
0
0.5
1
1.5
2
2.5
Gasoline consumption per capita
Philippines VietNam Hongkong China Indonesia
Malaysia Japan Thailand Brunei
Mm tons/year
-30
-20
-10
0
10
20
-2,000
-1,000
0
1,000
2,000
Q1.2020 Q2.2020
Downstream’s Inventories
PLX OIL BSR Brent Price
Bn VND US $
Vietnam's aggregate petroleum consumption per capita is lower than other developing countries in South East Asia such as
Malaysia, Thailand, Indonesia… but it doesn’t mean the growth of petroleum consumption will grow rapidly to obtain the same
level as others. VCBS believe the domestic growth of petroleum product will maintain of 5% - 6% pa unless “Black Swan” event
take place, affecting GDP growth.
In 2020, COVID 19 pandemic makes Brent Oil price drop deeply under USD 20/barrel, exposing the weakness in the current
petroleum market structure. According to 83/2014/NĐ-CP, all petroleum wholesale enterprises must reserve their inventory for
30 days meanwhile petroleum retail price is adjusted every 15 days. Given the sudden slump of Brent Oil in 1Q.2020, most of
the wholesalers recorded a large amount of inventories provision.
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 20
VIETNAM OIL & GAS
Downstream: Heavily influenced by COVID 19
LNG is coming soon!
Hai Phong 1-3 MTPA
(2030 - 2035
Thai Binh FSRU 0.2-0.5
MTPA (2026 – 2030)
Khanh Hoa 3 MTPA
(2030 – 2035)
Son My 1 – 3 MTPA
(2023 – 2025)
Long Son 1 – 4 MTPA
(2020 – 2025)
Tien Giang 4 – 6 MTPA
(2022 – 2025)
Thi Vai 1 – 3 MTPA
(2020 – 2022) Ca Mau 1 MTPA (2022 –
2025)
LNG source 1
LNG source 2
LNG source 3
LNG source 4
Aggregator
Power (EVN)
Power (PVN)
Power (IPP)
Industry
EVN and/or PVN with
foreign portfolio players
LNG
SPA GSPA
0
5
10
15
2018 2019 2020 2021 2022 2023 2024 2025 2030 2035
Supply - Demand of Natural Gas at South of Viet
Nam
Natural Gas Supply Natural GaS Consumption
Facing the risk of gas shortages apparent growing, Vietnamese government is planning to import natural gas via the existing pipelines
(PM3- CCA; Nam Con Son 2) from Malaysia & Indonesia. However, this plan is only worth in case the exploited region &
overlapping region are identical (Malay Tho Chu is currently launched simultaneously by PVN & Petronas). If PVN builds an
additional pipeline as required, PVN needs to pose some consideration over its feasibility.
Given the favorable movement of LNG price, Vietnamese government leans on doing an LNG project to capture the LNG usage trend
in the world. Many new emerging LNG markets using FSRUs has grown rapidly since the first deployment in 2005. Regarding
Vietnam, the Public-Private model are showing that the power projects are owned by foreign companies under the BOT scheme and
the LNG infrastructure will be owned by EVN or PVN (in partnership with international companies). The cost of LNG Infrastructure
will be passed through to the tariff and the Government guarantees PVN or EVN’s obligation to construct, operate, and maintain the
LNG infrastructure.
Formerly, LNG is mainly serving to the urgent needs of the thermal power plants. In the latter, the Vietnam government will expand
the range of LNG applications to other industries.
Source: VCBS, Fitch
© RESEARCH DEPARTMENT ǀ JUN - 2020 21 21
VIETNAM OIL & GAS
Downstream: Heavily influenced by COVID 19
Stable growth ahead
Myanmar
Philippines India
Vietnam
China
Indonesia Thailand
South Korea Brunei
Taiwan
Malaysia
Japan
0
10
20
30
40
50
60
0 10000 20000 30000 40000 50000 60000 70000 80000
Kg
per
per
son
Cummulative Residential / Commerical Demand
Per Capita Residential / Commercial LPG Demand In
Asia, 2017 Estimate
0
10
20
30
40
50
60
70
80
0 2000 4000 6000 8000 10000 12000 14000 16000 1800020
18
Res/
Co
m L
PG
Co
nsu
mp
tio
n (
Kg
per
Ca
pit
a)
GDP Per Capita (2018 USD $)
LPG Market Development Versus GDP Per Capita In
Selected Countries
0
5
10
15
20
25
30
Mil
lio
n m
etri
c to
ns
per
yea
r
LPG Demand In Southeast Asia By End User
Residential/Commercial Industrial
Engine Fuel/Others Chemical
Production
Regarding Vietnam market, we forecast residential LPG sector to have stable growth rate of 8 – 10% pa but there is a differentiation in each regions. In detail, rural area could
perform better meanwhile urban area tends to decelerate.
Regarding chemical LPG segment, petrochemical process activity which are attracting a huge amount of FDI inflow from Thailand, Korea, etc uses LPG as its major material.
For instance, Long Son Petrochemical exploited since 2018 and predicted to put into operation from 2023 with total capacity of 2.7 million tons material per year. Therefore, we
believe this industry should play a key role in driving growth of the overall of LPG market.
However, most of domestic LPG companies are retailers operating in residential and industrial segments which have no business with chemistry customers. As a result,
domestic group may not capture the fast growth rate as the whole industry.
Source: VCBS, IHS Markit
© RESEARCH DEPARTMENT ǀ JUN - 2020 22 22
VIETNAM OIL & GAS
Downstream: Heavily influenced by COVID 19
No highlights in investment
36%
15% 14%
8%
27%
Market share for LPG civil in the South
PVGas South Saigon Petro Total Petrolimex Others
30%
17% 12%
9%
32%
Market share for LPG civil in the North
PVGas North Petrolimex Total Family Gas Others
VCBS realize the LPG market structure has not changed much since 2015 although there is a fierce competition in the industry.
Particularly, it can be explained by the consumer loyalty. Consumer choice is intimately related to safety level, especially in terms of
fire protection. For instance, if clients have been using LPG from a brand for a long time, they are less likely to change for another,
despite the alternative brands having lower price.
Given the slump of Brent Oil price in 1Q.2020, the global CP price also formerly recording a low of USD230 – 240/tons in March
then bouncing to USD330 – 340/tons, most of the LPG retailers should have made a provision for its inventories devaluation in
1Q.2020. The social distancing in respond to COVID 19 lead to a dumping of LPG’s consumption.
In 2H.2020, VCBS expect a recovery in LPG demand. However, 2020 growth is likely to record at 6%, as 2% lower as the previous
year.
Threat of New Entrants
Customers Bargaining
Power
Threat of SubstitutionsSuppliers Bargaining
Power
Competitive Rivalries
Five Forces Model
0
100
200
300
400
500
600
700
0
10
20
30
40
50
60
70
80
1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr
Brent Oil & LPG Movements
Brent Oil Propane Butane
US $ US $
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 23 23
VIETNAM OIL & GAS
General outlook
Outlook Matrix
BRENT OIL PRICE 30-35USD 45-50 USD 60-65 USD OUTLOOK
UP
ST
RE
AM
PVS
PVS outlook heavily depends on such big projects as Block B, Nam Du – U Minh whose break-even oil prices are USD 50 – 55 per bbl. We are
posing concern about PVS outlook under current situation.
PVB NCS2 (phase 2) has been launched, revenue of which should be recorded in this Q2.2020. Therefore, most of PVB income ahead after 2020 are
generated from Block B project.
PVD PVD’s workload and day-rate are crucially depending on regional markets whose projects are very sensitive to global oil market when making
decision on deployment.
PXS PXS’s performance are independent from oil price as its earning is generated from Long Son project which are being launched.
MID
-
ST
RE
AM
GAS Its performance is highly correlated with oil price movement.
BSR
In theory, oil price should not have any impacts on BSR’s performance. However, a sudden sharp decline in oil price may incur inventories
provision expense to BSR.
DO
WN
-
ST
RE
AM
PGS
CNG
PGD
PLX PLX and OIL keep their inventories on hand for up to 30 days, but adjusting their output price in 15 days (following government guidance). As
a result, a sudden drop of oil price in short period may negatively affect their performance. OIL
While:
: POSITIVE (5% - 15%)
: NEUTRAL (-5% - 5%)
: NEGATIVE (< -5%)
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN- 2020 24
GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT “TECHNOLOGY”
VIET NAM OIL & GAS: HOPE!
STOCK PICK: OPPORTUNITIES IN LOW BASE
© RESEARCH DEPARTMENT ǀ JUN - 2020 25 25
STOCK PICK
Upstream: Petro Vietnam Drilling Joint Stock Company - PVD
General overview
Business Activities
PVD is operating in drilling and related services belong to Oil & Gas Upstream
segment. PVD’s sales mainly come from drilling service which accounts for 40%
of total revenues.
Currently, well – related drilling service is playing a key role PVD’ revenue
structure since Rig’s day rate has dropped a sharply.
Shareholder Structure
PVD has high liquidity thanks to diversified shareholder structure. In 2019, PVD
has stock dividend payment with a rate of 10 : 1, raising its total listed share to
421,544,970 shares.
Business Result
In 1Q.2020, PVD recorded VND1,675bn (+84% yoy) of revenue and VND16bn ()
of NPAT. PVD’s business result received boosts from (1) Utilization rate increased
to 99.8%, compared to 99.6% in the same period last year; (2) There was a slightly
increasing day rate by 9.5% yoy (1Q.2020: USD60,200/day; 1Q.2019:
USD55,000/day).
46.50%
13.30%
7.10%
15.30%
11.30%
6.50%
36.80%
14.40% 4.40%
16.50%
22.60%
5.40%
Revenue Structure
Drilling
Well - Related
ServiceWorkshop
Human Source
Trading
Inside 2018
Outside 2019
50%
1%
27%
21%
1%
Shareholder Structure
Petrovietnam
Local Inst
Local Ind
Foreign Inst
Foreign Ind
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2017 2018 2019E 2020F
Bil
lion
VN
D
PVD’s Business Results
Revenue
NPAT
Gross margin
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 26 26
STOCK PICK
Upstream: Petro Vietnam Drilling Joint Stock Company - PVD
Workload is strongly affected by COVID 19
Notes
: Already secured : Canceled : Rig move : Idle
Drilling Plan
Rigs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
PVD’s JU rigs
PVD I PCSB Hibiscus
PVD II PCSB PCSB
PVD III Repsol Repsol
PVD VI Sapura Rosneft
PVD V
PVD’s Hired rigs
Hakuryu 11 Sao Vang
IDUN Viet Nam Viet Nam market
SAGA Viet Nam
In late 2019, the day rate & utilization rate have boomed thanks to the rising consumption of drilling rigs in the Malaysian market. To obtain 2019 output volume target, Petronas
increased its drilling capacity in a spot by hiring more rigs oversea that pushed the regional day rate & utilization rate above USD90,000 & 75%, respectively. Then, they dropped
immediately to USD75,000 & 70% in early 2020 as our expectation. The regional day rates only rise sharply in short term due to the temporary shortage of rigs at Malaysian &
Indonesian markets meanwhile the bulk of rigs are being either under stand-by status or under construction in Singapore.
In early 2020, COVID 19 pandemic made Brent Oil drop to USD20/barrel, which resulted in a simultaneous shutdown of Oil & Gas projects in Malaysia. VCBS forecast PVD’s
utilization rate to decrease to 75% in 2H.2020, lower than our previous prediction rate of 95%. PVD’s performance in 2H.2020 may be strongly affected if Brent Price couldn’t
recover to USD50/barrel.
60.9%
7.2%
0.5% 5.6%
11.4%
4.8%
9.6%
42.90%
15.30%
0.90%
10.30%
18.00%
9.10% 3.50%
Drilling Well technical
Oil spill control Workshop
Manpower Trading & Procument
Others
6.3%
28.1%
20.8%
8.7%
12.6%
15.3%
-8.2%
31.2% 31.5%
2.9%
14.6% 15.3%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
1Q.2020 1Q.2019
Source: VCBS
Revenue & Profit Structure
© RESEARCH DEPARTMENT ǀ JUN - 2020 27 27
STOCK PICK
Upstream: Petro Vietnam Drilling Joint Stock Company - PVD
Whether or not the rebound of oil prices Brent price
11
6
5
2
2
24
10
9
6
4
2
0 5 10 15 20 25 30
Malaysia
VietNam
Indonesia
Thailand
Philipines
Brunei
Singapore
Activities of Jack - up rigs in SEA 2019
Drilling & enroute Stacked & yard Under construction & on order
8
6
3
1
2
18
14
8
9
6
2
0 5 10 15 20
Malaysia
VietNam
Indonesia
Thailand
Philipines
Brunei
Singapore
Activities of Jack - up rigs in SEA 2020
Drilling & enroute Stacked & yard Under construction & on order
0%
10%
20%
30%
40%
50%
60%
70%
80%
0102030405060708090
100
US
D $
Average day rates & Total contracted
utilization in Southeast Asia
Jack - up Day Rate Utilization Rate
0%10%20%30%40%50%60%70%80%90%100%
0
10
20
30
40
50
60
70
US
D $
PVD's day rates & Marketed utilization
Jack - up Day Rate Utilization Rate
VCBS believe the downtrend of Brent Oil will be reflect slightly on day
rate & utilization rate in 2Q.2020. VCBS believed PVD’s performance
to be good in 1H.2020 whereas the Brent Oil slumps, thanks to the
current drilling contracts, whose day rates have already been identified
in previous report. However, PVD’s performance could change
dramatically in 2H.2020 as workload in Malaysia is expected to drop.
The number of drilling rigs rises in the Malaysian market by 7 compared
to the previous period. VCBS reiterate the Malaysian deployment policy
of Oil & Gas projects: if the Brent oil price remains above break-even
point of each specific project for 1 year, they will restart it immediately.
As a result, Brent price below USD50/barrel may force Petronas to
pause its projects whose break-even point is high. Currently, Petronas
has already cut off their drilling capacity in a spot.
VCBS believes PVD’s performance to be good only in 2Q.2020 thanks
to the current drilling contracts, then droping rapidly in the next 2
quarters due to the capacity cut of exploited oil & gas in almost area.
We revised our Sea regional day rate forecast to move within the range
of USD50,000 - USD55,000 under the assumption that global Brent Oil
maintains its price below 40USD/barrel in the rest of 2020.
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 28 28
STOCK PICK
Upstream: Petro Vietnam Drilling Joint Stock Company - PVD
Risky In Short Term
BASE CASE 7,500
GOOD CASE 12,500
FORECASTING
VALUATION
7,500
TARGET PRICE
-25% DOWNSIDE
ASSUMPTION Base case Good case
Day rates (USD/day) 55,500 60,200
Utilization rates (%) 70% 95%
BUSINESS RESULT
Sales (VND bn) 4,675 5,297
NPAT - Mi (VND bn) -54 163.8
ĐỊNH GIÁ
P/B - 0.4
Cash per share 7,500 -
Target Price 7,500 12,500
Upside Down 25% Up 15%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20
PVD Relative VN Index
© RESEARCH DEPARTMENT ǀ JUN - 2020 29 29
STOCK PICK
Midstream: Binh Son Refinery & Petrochemical JSC - BSR
General overview
Business Activities
Binh Son Refining and Oil Co.Ltd (BSR) which was established in 2008 has been
running Dung Quat refinery (DQR) - the only refinery in Vietnam at the moment. It
began operations in 2009, having a capacity of 6.5 million tons per year and
serving 30% demand of the domestic market.
Shareholder Structure
After IPO, BSR has fail to select a strategic partner. Therefore, state is owning a
dominated proportion of ownership. BSR is preparing documents to list on the
HNX exchange.
Business Result
In 1Q.2020, BSR recorded VND17,991 billion (-22% YoY) in revenue and VND-
2347 in NPAT. A slump in BSR’s business result results from (1) impact of COVID
19 pandemic on petroleum products consumption; (2) an estimated VND580 billion
of BSR’s inventories provision being recorded in 1Q.2020 because global Brent oil
suddenly dumped. As a result, BSR’s generated negative profit in 1Q2020.
Revenue Structure
Diesel DO
Mogas 95
Mogas 92
Jet A1
LPG
Polypropylene
FO
Others
2018: Inside
2019: Outside
92.13%
0.23% 7.64%
Shareholder Structure
Stated Ownership
Foreign Investors
Others
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0
20000
40000
60000
80000
100000
120000
140000
2018 2019 2020E 2021F
Bil
lion
VN
D
Business Result
Sales
Gros margin
Net margin
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 30 30
STOCK PICK
Midstream: Binh Son Refinery & Petrochemical JSC - BSR
Low efficient ratio
-25
-20
-15
-10
-5
0
5
10
15
20
25
01/17 04/17 07/17 10/17 01/18 04/18 07/18 10/18 01/19 04/19 07/19 10/19 01/20 04/20US
D $
Inventory Gain/Loss
Inventory Gain/Loss
VCBS sees a close relationship between Asia inventory gain/loss indicator and BSR’s performance, rather than regional crack spread 3 – 2 – 1 is Asia inventory gain/loss. Given
the sharp drop of Brent price in 1Q.2020, this indicator showed huge losses in value reflecting in BSR’s inventories provision. According to data in 2Q.2020, the recovery of
Brent oil prices could lead to a retroactive inventory.
The downfall in BSR’s performance has prolonged continuously since its IPO taking place in 2018. Unfavorable situation of Asia refining the market leading to a slump of crack
– spread plays as the main culprit. As our prediction in refinery market outlook, both down trend of oil price in near term and redundant refining capacity till 2025 may prevent
crack – spread from increasing steadily in the future. There is a chance that the recovery of Brent oil price and the global gas demand after COVID 19 is likely to result in a
temporary uptrend in the crack – spread.
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
04/2018 07/2018 10/2018 01/2019 04/2019 07/2019 10/2019 01/2020 04/2020
P/B & ROE
P/B Unit: Time ROE Unit: %Source: VCBS, Bloomberg
© RESEARCH DEPARTMENT ǀ JUN - 2020 31 31
STOCK PICK
Midstream: Binh Son Refinery & Petrochemical JSC - BSR
Opportunity in low base
WORST CASE 6,500
BASE CASE 8,500
FORECAST
Valuation
8,500/CP
TARGET PRICE
+20% UPSIDE
ASSUMPTION Worst case Base case
Brent Price(USD/barre;) 30 45
BUSINESS RESULT
Sales (VND bn) 42,937 64,406
NPAT - Mi (VND bn) 1,659 2,488
ĐỊNH GIÁ
P/B - 0.8
Cash per share 6,500 -
Target Price 6,500 8,500
Upside Down 15% Up 20%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jun-19 Dec-19 Jun-20
BSR Relative VN Index
© RESEARCH DEPARTMENT ǀ JUN - 2020 32 32
STOCK PICK
Downstream: Vietnam National Petroleum Group - PLX
General overview
Business Activities
Petrolimex main business scope is to import, export and deal in petroleum, refining
and petrochemical products, and some other fields such as bank and insurance.
Taken the country as a whole and the actual flow of sale in domestic market,
Petrolimex market share is estimated as about 50 percent.
Shareholder Structure
Ownership structure is condense as CMSC is the dominant shareholder with 83%
of ownership in PLX. A major shareholder acting as strategic partner, holding 9% is
JX Nippon Oil.
Business Result
In 1Q.2020, PLX recorded VND38,500 billion (-8% YoY) in revenue and VND-
1,893 in NPAT. A slump in PLX’s performance resulted from (1) impact of COVID
19 pandemic on petroleum product consumption, especially on Jet A1 revenue; (2)
an estimated VND1,600 billion of PLX’s inventories provision being recorded in
1Q.2020 (because of recent drop in Global Brent oil) versus VND500 billion
reversal in 1Q.2019. As a result, PLX’s showed a negative profit.
Revenue Structure
Gasoline
Refining
productsLPG
Insurance
Transportation
2018: Inside
2019: Outside
83%
9%
8%
Shareholder Structure
CMSC
JX Nippon Oil
Others
0%
2%
4%
6%
8%
10%
12%
0
50000
100000
150000
200000
250000
2018 2019 2020E 2021F
Bil
lion
VN
D
Business Result
Sales
Gros margin
Net margin
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 33 33
STOCK PICK
Downstream: Vietnam National Petroleum Group - PLX
PLX Is Trading With Low Ke
Expected sharp recovery in consumption of petroleum products after COVID 19: PLX has been maintaining a growth rate of sales of 8% in aggregate from 2014 to 2019. As a result of Covid 19 impact,
VCBS expected a slight slip by 5% in 2020 sale and a sharp bounce of 10% in 2021.
The effectiveness of inventories management on PLX’s profit in this period. PLX is seeping in the mature stage of its business cycle life. VCBS did not expect PLX’s volume to boom in the near future.
VCBS highly considers the effectiveness of inventories management of PLX in case of Brent oil price sharp fluctuation leaving its profit to be volatile.
Valuation: Given the ROE of PLX being around 15 – 18% & P/B being above 3 times in regular, VCBS estimated that market is expected a Ke of PLX by ≈ 12%. VCBS used the conservative assumptions
in our valuation: (1) Brent price continue to stay at USD35/barrel, no reversal of inventories provision to be recorded in the last 2H.2020; (2) 2021 cash dividend of VND1,500/share, from 2021:
dividend amount of VND2,500/share & g = 8% = average PLX’s sale volume growth. (3) VCBS continue to set PLX’s cost of equity (Ke) ≈ 12% & P/B ≈ 3 in our valuation.
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2015 2016 2017 2018 2019
Profitability Ratio
Đòn bẩy ROE ROIC
0.12
0.13
0.14
0.15
0.16
0.17
0.18
0.19
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
P/B & ROE
P/B
Unit: Lần
ROE %
Unit: %
Source: VCBS
© RESEARCH DEPARTMENT ǀ JUN - 2020 34 34
STOCK PICK
Downstream: Vietnam National Petroleum Group - PLX
COVID 19 is a “Black Swan”
Unit: VND bn 2019 2020E 2021F
Net Revenue 189,641 124,277 135,927
+/- yoy (%) -1.2% -34.5% 9.4%
Net Income 4,772 1,587 4,475
+/- % 17.9% -66.7% 182%
EPS (VND thousand/share) 3,287 1,096 3,097
P/B Method 54,050
DDM Method 53,150
FORECAST
Valuation
53,600/CP
TARGET PRICE
+21% UPSIDE
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
May-17 Nov-17 May-18 Nov-18 May-19 Nov-19
PLX Relative VN Index
© RESEARCH DEPARTMENT ǀ JUN - 2020 35 35
Terms and Contact Information
Term Of Use
This report and / or any statements or information contained in this report are not solicitation of an
offer to buy or sell any financial or securities products analyzed in this report nor are the products.
investment advice or investment advice of VCBS or its affiliates / members. Therefore, this report
should only be considered a reference source. VCBS does not assume any responsibility for
unexpected results when you use the information on securities trading.
All information contained in the analysis report has been collected and evaluated with the utmost
care possible. However, due to subjective and objective reasons from information sources, VCBS
makes no warranty as to the authenticity of the information mentioned in the analysis report nor is
it obliged to update the information. Information in the report after the time this report is released.
This report is copyright VCBS. Any act of copying part or all of the report and / or publishing
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Contact Information
All information related to the above report, please
contact us:
Tran Minh Hoang
Head or Research
Le Duc Quang, CFA
Equity Manager
Ngo Duy Tai
Senior Equity Analyst
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