What is the outlook for PVD?

>> What outlook for Vietnam oil and gas sector?

1Q 2024 revenue from PVD surged 43.1% YoY. The drilling services segment recorded a 27% YoY increase in revenue thanks to a 34% YoY increase in rig day rates and additional revenue from outsourced rigs. GPM improved from 19.4% to 25.7% mainly thanks to a spike in day rates and a 11.0% YoY decline in the depreciation expense component of COGS. However, the negative impact of exchange rates on PVD's 1Q performance is stronger than expected.

Oil prices fluctuating around USD83/barrel in the first five months of 2024 will support upstream exploitation activities and the demand for drilling rigs. The International Energy Forum and S&P Global forecast that total global oil and gas upstream investment capital could reach a CARG of 4.6% in 2023–2028F.

In 1Q24, KB Securities realized there was a risk when Saudi Aramco decided to postpone the plan to increase capacity by 1 million barrels of oil/day and suspend the contract for 18 jack-up rigs in the next 12 months to shift to the gas exploitation segment.

“We believe that the impact of this on PVD is not large because (1) most of the jack-up rigs mentioned above can switch between oil and gas exploitation to comply with Saudi Aramco's plan adjustment; and (2) rig contracts are only suspended for 12 months and can be continued when OPEC raises capacity again after the output cuts expire,” said KB Securities.

According to Bloomberg data, we estimate the utilization rates of IC 350 jackup rigs in the first five months of 2024 will average 90.7%, a sharp increase compared to 78.8% in the same period in 2023 and approaching the peak level of 92.9% in 2014.

>> Will PVD sustain its profit growth?

KB Securities still believes that rig utilization rates will remain high for at least the next two years, as the number of jack-up rigs over 30 years old accounts for 32% of the fleet, while the orderbook/fleet ratio is only 3.9% (vs 31.1% in 2014). Jack-up rig day rates are also expected to stay high during this period.

PVD plans to invest USD90 million in a 10-year-old jack-up rig, which is expected to be put into operation in early 2025. Currently, the business has had to change its target to another rig because the restart time of the initial one is too long, making it difficult to ensure progress for customers.

PVD could put the new rig into operation in 1Q25. In addition, PVD also plans to buy another drilling rig in the form of a joint venture to serve the Block B O Mon project, but detailed information has not yet been disclosed by the company.

“We expect 2024 will be an important year, marking the recovery of domestic upstream E&P activities after 10 years of being subdued. As we mentioned in the 4Q23 update report for PVD, there are currently at least 10 domestic projects reaching the drilling or well drilling stage in 2024. In the 2025-2027 period, the Block B O Mon, White Lion 2B and Golden Camel projects with a total capex of about USD7 billion will be the long-term growth driver for PVD's well-known technical services”, said KB Securities.