Bright outlook for Vietnam oil and gas stocks

Vietnam’s oil and gas stocks are expected to continue to grow in the long term with positive impacts from high oil prices, expected final investment decision (FID) approval of the Block B - O Mon gas-to-power project by the end of 2023, and the new Law on Oil and Gas.

Mixed Q3 for oil and gas stocks

The net profit of 12 listed major oil and gas enterprises in the third quarter (Q3) of 2023 increased by 86.4% year-on-year thanks to increased crack spread as a result of tightening global supply and tensions in the Middle East, and a more stable domestic gasoline distribution market.

Leading broker VNDirect Securities reported that the gross profit margin of the oil and gas group reached 6.6% in Q3, higher than the 5.3% in Q2 and the highest since Q4/2021 (6.9%).

The midstream group made an impression with many businesses recording a decline in revenue in Q3, but their profits multiplied many times from losses in the same period last year.

Binh Son Refining and Petrochemical JSC, registered on the unlisted public companies market (UPCOM) as BSR and the operator of the first oil refinery in the country Dung Quat, topped the list with Q3 net profit reaching VND3,235 billion ($132.7 million), a rise of 611% over the same period last year.

In the nine months through September, BSR reported VND105,490 billion ($4.34 billion) in revenue and VND6,186 billion ($254.7 million) in net profit, down 17% and 52%, respectively, from the record high base levels of the same period last year, but surpassing the year’s revenue and net profit targets by 10% and 280%.

Vietnam National Petroleum Group (Petrolimex), listed on the Ho Chi Minh Stock Exchange (HoSE) as PLX, ranked second with a gross profit of nearly VND3,780 billion ($155.66 million), an increase of 35% year-on-year. Its financial revenue expanded four times to VND1,118 billion or $46 million (mainly from divestment from PGBank), while its net profit skyrocketed 284.3% to VND729.4 billion.

In the nine months, PLX's net revenue fell 9% to VND205,596 billion ($8.5 billion) but its after-tax profit hit VND2,288 billion ($94.2 million), 4.6 times higher than the same period in 2022.

Petrovietnam Oil Corporation (UPCoM: OIL), Materials - Petroleum JSC (HoSE: COM) and Thanh Le General Import-Export Trading Corporation (UPCoM: TLP) also made a turnaround when recording Q3 net profits against big losses in the same period last year.

Unlike the midstream, the upstream group saw mixed business results in Q3.

PV Drilling (HoSE: PVD) reported Q3 net revenue of VND1,381 billion ($56.9 million), up 11% year-on-year, and a post-tax profit of VND132.9 billion, compared to a loss of more than VND25.6 billion ($1.04 million) in Q3/2022.

In the nine-month period, the company's revenue increased slightly to VND4,033 billion ($166.1 million), while its net profit was VND343.9 billion ($14.2 million), compared to a loss of VND201.7 billion in the same period in 2022.

Meanwhile, Petrovietnam Technical Services Corporation, listed on the Hanoi Stock Exchange (HNX) as PVS, posted a 19% year-on-year increase in Q3 revenue to VND4,175 billion ($172 million), and a net profit of only VND143.6 billion ($5.9 million), down 26%. In the nine months, PVS reached VND12,591 billion ($518.5 million) in net revenue, up nearly 14% over the same period last year, and VND606.2 billion ($24.96 million) in after-tax profit, up 33.6%.

Notably, no downstream enterprise reported net profit growth in Q3/2023. PV Gas (HoSE: GAS) reported a net profit of VND2,404 billion ($99 million), down 22.2% over the same period last year.

PV Trans (HoSE: PVT) recorded a profit of VND321 billion ($13.2 million), down 68.2% year-on-year. Similarly, the after-tax profits of Pacific Petroleum Transportation JSC (HoSE: PVP) and Phuong Dong Viet Shipping and Logistics JSC (UPCoM: PDV) also decreased by 68.2% and 68.1%, respectively

Long-term prospects of oil and gas stocks

In the year to November 13, many oil and gas stocks recorded good growth such as PVS (+78%), PVD (+53%), BSR (+48.3%), and PVT (+15.4%). Meanwhile, GAS decreased slightly by 3.2%.

Despite a strong gain in 2023, many securities companies predict that the growth potential for oil and gas codes remains in the coming time

Brent and WTI oil prices are currently traded at nearly $83 per barrel (up 0.78%) and $78.4 per barrel (up 0.24%), respectively.

Forecasting oil prices in the near future, the U.S. Energy Information Administration (EIA) believes that Brent oil prices are forecast to be around $93 per barrel in Q4/2023 and decrease to an average of $87 per barrel in 2024. Meanwhile, Goldman Sachs forecasts that Brent oil will be traded at around $86 per barrel in December 2023 and $93 per barrel in H1/2024.

In October, Petrovietnam signed contracts with partners to implement the multi-billion-dollar Block B - O Mon Block B gas-to-power project.

Top broker SSI Securities evaluates that if the project reaches the FID, it will provide strong support for the oil and gas industry. PVS, PVB and PVD will be the first to benefit from this mega project, because these businesses play an important role in the upstream construction and drilling process to exploit the first gas flows in 2026.

PVS and PVD are expected to generate significant revenue over the life of the project based on the oil and gas development plan, while PVB will record a backlog related to the project until 2025.

"Assuming that the FID will be approved by the end of 2023, PVS and PVD can achieve a compound annual growth rate of 15.9% and 26% in net profit in 2023-2026 respectively. The backlog from the Block B project will be the key to this growth rate," SSI analyzed.

In addition to the above businesses, Yuanta Vietnam Securities estimates that GAS will also benefit from the project thanks to holding 51% of the gas pipeline shares. GAS's business results will be positive from 2026 due to additional supply from Block B and reduced gas transportation costs.

Another driving force for oil and gas stocks is the revised Law on Oil and Gas effective from July 2023, which will create a basis for the negotiations for contract extensions and deal restructuring to promote the deployment of EPCI (Engineering, Procurement, Installation & Commissioning) by the end of 2023.