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Trang 1 Oil & Gas Industry“Weakening demand as the outbreak disrupts normal global economic activity”Huynh The Chu+84 335 699 989 Trang 2 Global Market:WTI price plummeted to -37 USD/
Oil & Gas Industry “Weakening demand as the outbreak disrupts normal global economic activity” Huynh The Chu (+84) 335 699 989 Huynh.ChuThe@mbs.com.vn Macro outlook Stock market outlook Key investment themes Stock picks Oil and gas industry Global Market: WTI price plummeted to -37 USD/bbl on April 20, 2020, which is unprecedent in the history despite the effort from OPEC+, leading by Saudi Arabia and Russia with G20 to stabilize the worldwide oil price amidst of market turmoil Thus, oil price was free falling 25% as the Covid-19 pandemic is wide spreading Global demand directly takes a hit when the outbreak started from China early this year then spread like wildfire within 2-4 months Rapid escalation in Covid-19 spread has forced the economic powerhouses like the US, Europe and Japan to lock down Demand in March declines 10% from same period 2019 and 12% from the end of 2019, equivalent of 10-12 barrels each month In April and May, there’s likely to be a deeper dip of over 25% or 25-26 barrels a month The effort OPEC+ to stabilize the market by cutting production on April 9th to 9.7 mbpd, effective in May-June, 2020 and revert to 5.7 mbpd until the end of April 2022 Moreover, G20 also agreed to stabilize oil market and consider to further cut 15 mbpd Vietnam Market The impact of Covid-19 and a decline in oil price early March, upstream activities are grappling, creating a domino effect to oilfield service companies like PetroVietnam Drilling & Well Services Corporation (PVD) and PetroVietnam Technical Services Corporation (PVS) Both service charge and the workload are under pressure due to limited exploration activities As for mid- and downstream, companies such as PetroVietnam Gas JSC (GAS), Viet Nam National Petroleum Group (PLX), Binh Son Refining and Petrochemical Joint-Stock Company (BSR), and PetroVietnam Oil Corporation (PVOIL) are all suffering from a deep plunge of 30-40% of oil price, especially aviation fuel drops 60-70% Macro outlook Stock market outlook Key investment themes Sector Outlook Oil and gas industry Global supply- demand before OPEC+ production cut agreement April 9th 2020 Global market 105.0 15.4 18.0 Global demand is experiencing the impact of the Covid-19 outbreak starting from China then spreading across 100.0 12.5 16.0 the world within the past 2-4 months Rapid escalation in the spread has forced the economic powerhouses 14.0 like the US, Europe and Japan to lock down Demand in March declines 10% from same period 2019 and 12% 95.0 9.6 12.0 from the end of 2019, equivalent of 10-12 barrels each month In April and May, there’s likely to be a deeper 90.0 10.0 dip of over 25% or 25-26 barrels a month 85.0 6.1 8.0 80.0 6.0 Weakening demand as the outbreak disrupts normal global economic activity 75.0 3.0 4.4 4.0 70.0 2.0 According to EIA’s April report, worldwide oil consumption in March was 89.4 mbpd, dropping 10.01 mbpd compared to the 0.8 0.9 2.2 - same period in March 2019 and 12.7 mbpd in Dec.2019 The gap between Supply and Demand increase 9.6 mbpd (2.0) 0.4 (4.0) EIA suggests April and 2Q20 demand will continue to decline to respectively 83.5 mbpd and 88 mbpd Whereas, supply remains high (before new cut deal) at respectively 99.1 and 99.4 mbpd Thus, supply surplus reaches its peak in April at 15.4 (0.6) (0.0) (0.3) (0.6) mbpd and 11.4 mbpd for the 2nd quarter (1.7) (1.6)(2.5) Annual consumption is projected to reach 95.51 mbpd, dropping 5.2% or 5.24 mbpd from 2019 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 Meanwhile, International Energy Agency (IEA) warns of crashing demand in April, dropping 29 mbpd, to hit the lowest level 16 17 18 19 2020 since 1995 FY20, IEA estimates refinery intake to decline 9.3 mbpd to 91 mbpd Supply-Demand (RHS) Supply Demand Crude demand in China is sharply declining since February 2020 to 11.3 mbpd and 11.2 mbpd in March, down 21.6% from January and 22.4%-22.9% yoy EIA forecast a recovery in April demand to 12.9 mbpd and 15.5 mbpd by the end of the year Oil consumption by country OECD’s crude intake dipped to 41.8 mbpd (-10.6% yoy) in March and could reach the bottom in April to 36.4 mbpd (-22.6 yoy) Since the beginning of 2020, March and April demand has erased 11.8% and 23.2% OECD’s demand could recover in 60.0 May and reach 46.8 mbpd in Dec 2020 50.0 42 47 47 48 47 46 46 42 45 46 46 47 47 47 45 40.0 36 38 30.0 20 20 21 21 20 20 19 16 17 19 20 20 20 20 20 20 20 20.0 10.0 13 14 14 15 14 11 11 13 13 14 14 14 15 14 15 15 15 - T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 16 17 18 19 2020 T1.2021 OECD USA China Source: EIA, MBS research Macro outlook Stock market outlook Key investment themes Sector Outlook Oil and gas industry Global supply- demand after OPEC+ production cut agreement April 9th 2020 Global market 110.0 15.4 20.0 The effort OPEC+ to stabilize the market by cutting production on April 9th to 9.7 mbpd, effective in 100.0 15.0 May-June, 2020 and revert to 5.7 mbpd until the end of April 2022 Moreover, G20 also agreed to 9.6 10.0 stabilize oil market and consider to further cut 15 mbpd 90.0 5.0 80.0 0.8 0.9 3.0 4.4 2.8 - According to EIA, supply in March 2020 reached 99.02 mbpd, dropping 1.05 mbpd from February and 1.24 mbpd 70.0 (5.0) from March 2019 Average output in the 1st quarter slightly declined 0.19 mbpd yoy to 100.11mbpd (0.6) (0.0) (10.0) (15.0) USA’s crude production remained at 12.72 mbpd in March, up 0.83 mbpd yoy In 1Q20, monthly output reached (3.6)(5.5) (5.3) 12.73 mbpd EIA forecasts that the USA will produce 12.39 mbpd in April and slightly drop to 12 mbpd each month (8.0)(9.4)(8.3)(9.3)(10.2) for the rest of the year Average monthly output is expected to be 11.75 mbpd, or 96.15% of 2019 average T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12 OPEC’s crude production reached 27.7 mbpd in March, slightly dropping 0.23 mbpd from February and 1.9 mbpd yoy EIA suggests that monthly average by the end of the year will continue to increase, averaging 28.65 mbpd or 16 17 18 19 2020 97.9% of 2019 average (estimated before new cut on April 9th) Supply - Demand (After Agreement, RHS) On April 9th, 2020, OPEC+ has reached a new cut deal that will take effect in May 2020 OPEC+ agrees to cut 9.7 Supply after OPEC+ Agreement April 9th mbpd in May and June, 7.7 mbpd by the end of 2020 and 5.7 mbpd starting from 2021 On top of that, G20 has Demand joined to stabilize the market and agreed to further cut 20 mbpd Supply Accordingly, May and June supply will reach roughly 90 mbpd whereas demand remains unchanged at 87-93.5 US Weekly Ending Stocks of Crude oil and Petroleum products mbpd Thus, there’s a surplus of 3.6 mbpd and will surge to 10.2 mbpd by the end of the year 1,000 IEA projects oil production will sharply fall as a result of April 9th agreement and other countries will increase their proven oil reserves Along with recovery in oil demand once the Covid-19 outbreak is contained, within late half of 900 863 2020, demand is expected to surpass supply 800 mil barrel May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 700 600 638 500 532 400 300 US Ending Stocks of SPR Crude Oil US Ending Stocks of Crude Oil excluding SPR US Ending stock Petroleum products Source: EIA, OPEC+, MBS research Macro outlook Stock market outlook Key investment themes Sector Outlook Oil and gas industry Oil Price Movement Global market WTI Brent Oil price movement in first 4 months of 2020 100 4/2/2016 4/2/2017 4/2/2018 4/2/2019 4/2/2020 80 WTI price plummeted to -37 USD/bbl on April 20, 2020, which is unprecedent in the history despite 60 Oil Price Forecast the effort from OPEC+, leading by Saudi Arabia and Russia with G20 to stabilize the worldwide oil 40 price amidst of market turmoil Thus, oil price was free falling 25% as the Covid-19 pandemic is wide 20 WTI Oil price Brent Oil price spreading 0 -240/2/2015 Past data Forecast Price has plummeted since early March after the OPEC+ panel on March 6th came into no agreement -40 to further cut 1.5 mbpd Oil was trading at 18-year lowest price on March 31st -60USD/bbl Jul On April 9th, OPEC+ agreed to cut 9.7 mbpd in May and June 2020, 7.7 mbpd in July until the end of 80 Aug 2020 and 5.7 mbpd in 2021 Furthermore, G20 joined a hand to stabilize the market by further 70 Sep cutting 15 mbpd 60 Oct 50 Nov Despite that, while the cut deal hasn’t taken effect, supply will remain at 98-99 mbpd whereas global 40 Dec demand dips 15% in March and is projected to drop 25$ in April and May, which widens the gap 30 Jan between supply and demand and shortage of storage for oil Investors are dumping WTI May 20 Feb futures contracts expiring on April 21st, thus further plummeting oil price to -37 USD/bbl 10 Mar Apr Analysts suggest that oil price plunge is inevitable despite OPEC+’s new cut deal “The agreement is 0 May simply not enough as oil demand destruction could reach 30 mbpd, 3x OPEC+ cut” Jun Jul EIA estimates WTI and Brent to drop respectively to 20 USD/bbl and 22.5 USD/bbl in April then Aug recover in December to 31 USD/bbl and 33 USD/bbl Though, these are estimates before April 9th Sep agreement Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019 2020 2021 Source: Bloomberg, EIA, TTNC MBS Macro outlook Stock market outlook Key investment themes Sector Outlook Oil and gas industry Vietnam Oil & Gas Production and Reserve Expand Vietnam market Mil Tons Oil price sharply dropped to 30 USD/bbl in March 2020, putting pressure to oil companies, especially the 60.0 2.0 upstream sector that involves exploration and drilling 50.0 1.8 According to PVN, for each $1 drop in oil price, its retail revenue drops $225,000/ barrel At the price of 30-25 USD/bbl, PVN records a loss of VND 3 billion in FY20 revenue In case of oil price free falling, 1.6 revenue and profit will continue to plunge 40.0 1.4 Upstream activities are grappling, creating a domino effect to oilfield service companies like PetroVietnam Drilling & Well Services Corporation (PVD) and PetroVietnam Technical Services 1.2 Corporation (PVS) Both service charge and the workload are under pressure due to limited exploration activities 30.0 1.0 Exploration, Drilling and Manufacturing 20.0 0.8 • Exploration activities in the past few years have been limited as oil price is dropping since 2015 with no sign of 0.6 recovery The dip in oil price this year even exacerbates the problem due to limited capital resources, dwindling proven oil reserves, thus companies resort to expand to areas with low potential Escalated tension in the East Sea 10.0 0.4 is another hurdle According to PVN, investment for exploration in 2014 was 2.5-3 billion a year but since then, it has dropped to USD 500 million within 2015-2019 Investment for exploration activities is under constraint Output 0.2 is dwindling as large oil reserves such as Bach Ho field and Cuu Long basin are running out whereas smaller reserves require substantial investment - - • Several investors have shown sign of reluctance and prolong progress of few projects in 2020 such as Jardin 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 decided to suspend Nam Du- U Minh project At the same time, other foreign-owned projects like Blue Whale of Exxon Mobil are cut down and capital flows are extended Reserve Expanded Crude Oil Production Natural Gas Production Reserve/Production (RHS) Annual investment for oil exploration (bn USD) 3 2.5 2 1.5 2.5 1 0.5 0.5 2016-2019 0 2010-2015 Macro outlook Stock market outlook Key investment themes Source: MOIT, MBS Research Sector Outlook Oil and gas industry 12 Vietnam's Natural Gas Production 10 Vietnam market 200 8 150 Dip in oil price takes a toll on domestic LNG projects but it also 6 100 pushes the importation of LNG in response to rising electricity- 4 50 generating demand 2 0 0 Billion m3 Focus on LNG extraction to ensure electricity production and 1994 increase output in 2022 Project 1995 LNG Hai Linh 1996 LNG Nam Con Son Phrase 2: completion of pipe systems from Sao LNG Thi Vai 1997 Vang- Dai Nguyet gas field (2021) and Su Tu Trang field (2022) LNG Son My 1998 LNG Bac Lieu 1999 Thi Vai TNG terminal with phrase 1 capacity of 1 mn ton/ year, LNG Cai Mep Ha 2000 completed by 2022 to provide for Nhon Trach power plant 3&4 2001 2002 In the long term, PVN will allocate resource to LNG extraction projects 2003 in Ma Lay- Tho Chu, including Lot B O Mon, Nam Du- U Minh where 2004 has a large reserve for long-term development plan 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020KH 2020F Annual Production (LHS) Cumulative Production (RHS) Investor Capacity Status Hai Linh Ltd., PVN-PVGAS 220 nghìn tấn/năm Pending PVN-PVGAS GĐ1 triêu tấn/năm- Hoàn thành 3-6tr Capital raising Delta Offshore Energy Pte tấn/năm Pending Tập đoàn T&T và GEN X Energy 150-174 million m3 Approved 9 mn ton/ year Reviewing LNG Van Phong Petrolimex Reviewing LNG Long Son EVN-GENCO3 Phrase 1: 3.5 mn ton- Phrase 2: 6.5 Reviewing LNG Ca Na Gulf Energy Development mn ton/year Reviewing 6 mn ton/year LNG Vung Ang Siemens Ensure LNG for a 1.500 MW- Reviewing electricity plant Stock market outlook Source: MOIT, MBS Research Macro outlook Key investment themes Sector Outlook Oil and gas industry Gasoline Production- Consumption and Import-Export Vietnam market Thousand tons 20,000 18,000 Refinery and distribution: 16,000 14,000 Due to the Covid-19 pandemic and decline in oil price, oil refinery and 12,000 distribution are both affected Demand is weakening as production and mobility 10,000 are restricted 8,000 We view downstream companies such as GAS, PLX, BSR, and PVOIL are under 6,000 pressure of the Covid-19 and the free fall of oil price The outbreak within the 4,000 last 2 months has driven price down 30-40%, especially aviation fuel 2,000 experienced 60-70% decline and may continue to prolong - Processing activities 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Decline in oil price and weakening demand due social distancing to cope with the Covid-19 have slowed down refinery activities Deteriorating consumption, low inventory turnover, and wide spread Production Import Consumption between sale price and material price render refinery companies to take on large losses in 1Q20 Distribution Distribution channels are disrupted Petrolimex and PVOIL, 2 largest distributor, that make up for 70% of market share, are struggling and reporting enormous loss Macro outlook Stock market outlook Key investment themes Source: MOIT, MBS research Sector Outlook Oil and gas industry Vietnam market – Financial result PVN’s financial results Item Unit 2017 2018 Plan 2019 Result Plan 2020 % annual Plan 10-15 Q1 result Addition to oil reserve Mn ton 4.00 12.00 10.62 Oil output Mn ton 15.50 14.00 10-15 13.38 9.74 NA NA Gas output Mn ton 10.00 11.82 Oil refinery output Mn ton 9.90 11.80 12.40 13.11 21.60 2.83 26.6% Electricity output Bn kwh 6.80 21.00 1.56 Fertilize output Mn ton 20.58 9.70 10.21 641.0 2.32 23.8% Revenue Trillion VND 1.65 1.63 11.35 11.49 32.3 Pre-tax profit Trillion VND 267.2 320.9 21.60 22.60 27.5 3.42 28.9% Net income Trillion VND 46.9 82.1 Attributable to budget Trillion VND 37.2 50.6 5.33 24.7% 97.5 38.6 121.3 1.58 1.58 0.44 28.2% 383.2 396.9 165.0 25.7% 31.3 43.8 NA NA 24.7 35.2 NA NA 87.5 108.0 20.8 25.3% *: - 2020 Plan was created based on Crude Brent of USD 60 per barrel Source: PVN, MBS Research - FY17-19 revenue was in consolidated financial statement Sector Outlook Macro outlook Stock market outlook Key investment themes Oil and gas industry Vietnam market – Financial result Oil companies’ financial result Financial result until 1Q20 2019 result 2020 target 1Q20 result 2020 Forecast Impact of drop in oil price Ticker Unit Mark cap Pre-tax Pre-tax Pre-tax Pre-tax Short term Mid-long 7.5.2020 Revenue profit profit profit profit Total asset Debt Revenue Revenue Revenue 3-6M term >9M GAS Bn VND 65,453 13,490 131,488 75,310 15,068 66,164 8,294 17,094 2,968 61,644 11,617 Neutral Positive PLX Bn VND 55,079 33,119 49,233 189,656 5,648 n/a n/a 38,478 -1702 152,600 3,600 Negative Positive BSR Bn VND 47,629 15,923 18,603 102,824 3,054 80,686 1,364 17,991 -2,345 63,797 No loss Negative Neutral PVS Bn VND 25,428 12,467 5,736 17,233 948 15,000 800 3,241 177 16,561 1,032 Neutral Positive PVD Bn VND 21,338 7,154 4,030 4,368 189 4,680 100 1,675 26 6,026 325 Positive Negative PVT Bn VND 11,214 5,379 2,843 7,758 1,016 6,200 550 1,578 120 6,850 700 Negative Neutral DPM Bn VND 11,438 3,171 5,440 7,757 467 9,237 512 1,711 129 8,600 650 Positive Neutral DCM Bn VND 10,194 4,010 4,240 7,177 463 5,940 55 1,393 100 6,200 260 Positive Neutral OIL Bn VND 21,552 11,223 8,381 79,872 412 n/a n/a 17,684 -531 68,000 No loss Negative Neutral PVB Bn VND 856 411 324 383 52 621 58 377 60 600 60 Positive Negative Source: companies’ financial statements, MBS Research Macro outlook Stock market outlook Key investment themes Sector Outlook