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OIL & GAS – Vibrant domestic E&P activities in sight

Sector note 11/04/2024    90


  • PetroVietnam is boosting investment, signaling that domestic E&P activities should be increasingly vibrant in the next couple years.
  • Block B – O Mon gas-to-power chain project is still the main driver for Vietnam’s O&G industry.
  • We believe upstream service providers such as PVS and PVD will be the key beneficiaries.

Tight global supply will keep oil prices high

Global oil demand is continuing to rise as significant economies such as the US and China show indications of recovery. In contrast, the extension of OPEC+ voluntary production cuts through 2Q24 and escalating geopolitical tensions are likely to cause supply tightness in the near term. A supportive balance in global oil markets will likely keep Brent oil prices high, averaging US$85/bbl in 2024. The high oil price environment will create favorable conditions for E&P activities worldwide.

PetroVietnam’s investment is on the rise

Global O&G upstream investment has increased since a trough in 2020, triggered by global oil undersupply after the pandemic and a high oil price environment. PetroVietnam (PVN) has not missed this trend. For 2024, PVN has a capex plan of roughly VND50tn (US$2bn), an increase of 54% compared to the actual investment number of 2023, in which upstream investments will make up 52% of total PVN capex. As O&G projects always span over many years, we expect PVN to continue boosting capital expenditure in coming years, signaling that domestic E&P activities will be increasingly vibrant from 2024 onwards.

Block B – O Mon is still the main driver for the industry

The multibillion-dollar Block B – O Mon project has seen significant movement over the past few months. After awarding some key EPCI packages to contractors in late- 2023, related parties have just signed key commercial agreements (GPSA, GTA and GSA) on March 28, 2024. We expect PVN to soon solve the remaining bottlenecks to get the FID award in 2Q24. The official FID award will be the premise for Block B chain’s entire implementation. With estimated capex of over US$3.5bn for the first phase (until the first gas as at late-2026), Block B – O Mon will provide huge workload for upstream service providers.

Upstream service providers should be the key beneficiaries

Generally, increasingly robust E&P activities in Vietnam first strengthen the growth prospects of upstream service companies. And the leading companies in the industry who have the best opportunity to take advantage of this investment are PVS and PVD, in our view.

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