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Oil & Gas – Which O&G stocks to ride on Block B – O Mon kick off?

Sector note 13/01/2022    234

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  • The Decree 114/2021/ND-CP related to the use of ODA released on Dec 2021, is expected to untangle the bottleneck of the Block B – O Mon chain.
  • We expect Block B – O Mon project to start soon in 2H22F, becoming a great growth motivation for companies in Vietnam’s oil and gas value chain in coming years.
  • We like PVS, PVD and GAS in “Block B-O Mon” investment theme.

We expect Block B – O Mon project to be kicked off in 2H22F

After delaying for many years due to a bottleneck in O Mon III power plant project, we finally see the light at the end of the tunnel for Block B – O Mon chain when the Government has issued Decree No.114/2021/ND-CP (dated December 16, 2021) on the management and use of Official Development Assistance (ODA) to replace Decree 56, creating a key legal basis for approving investment policy for O Mon III power plant. Accordingly, we expect the upstream project to have a final investment decision (FID) in late-2Q22F after the Government approves investment policy for O Mon III in 2Q22F, setting the stage for Block B – O Mon project chain to kick off in 2H22F.

We believe the project to bode well for O&G companies in coming period

Block B – O Mon is one of the largest gas projects in Vietnam to date, with total investment of roughly US$10bn for many sub-projects from upstream to downstream. According to PVN, an estimated US$19.23bn will be added to the state budget during the project’s 20-year lifetime from gas field development and pipeline projects. Furthermore, four gas-fired power plants in O Mon would bring the total capacity of 3,810MW, supplementing power supply for the South in the future. Thus, we believe the start of a giant project like Block B – O Mon to be a growth motivation for companies in Vietnam’s oil and gas value chain, strengthening industry’s fundamental and driving O&G companies’ earnings growth in coming years.

We like PVS, PVD and GAS in “Block B-O Mon” investment theme

In our views, the leading companies in the industry have more chances to trail Block B project footprint, including the upstream services providers like PVS and PVD. Besides, as a major investor for Block B – O Mon pipeline (51% of total investment), we also believe GAS to be a key beneficiary from this project thanks to the Block B’s additional gas source and gas transportation tariff.

Investment risks

Upside risks include faster-than-expected project progress and higher-than-expected workload for local upstream service providers. The key downside risk is the further delay in this project’s investment approval and EPC award.

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