TRIS Rating Co., Ltd. has affirmed the company rating of PTT Exploration and Production PLC (PTTEP) and the ratings of PTTEP’s senior debentures at “AAA” with “stable” outlook. The ratings continue to reflect the company’s leading position in the petroleum exploration and production (E&P) industry in Thailand, solid asset base, the support received as the E&P arm of the Thai government, and healthy financial profile. The ratings also take into consideration the execution risk connected with its overseas operations. The “stable” outlook reflects TRIS Rating’s expectation that PTTEP will maintain its healthy financial position despite the large capital expenditures planned for 2012-2016. With the company’s disciplined and conservative financial policy, PTTEP is expected to pursue its growth strategy without weakening its financial strengths.
TRIS Rating reported that PTTEP is the leading petroleum E&P company in Thailand. It was established in 1985 to hold petroleum concession rights on behalf of the Thai government. As of February 2012, PTT PLC (PTT), the national oil and gas company, held a 65.3% stake in PTTEP. PTT and PTTEP remain state enterprises as defined by Thai law. As the E&P arm of PTT and the Thai government, PTTEP has leveraged its position to participate in petroleum projects with high potential, both in Thailand and abroad.
TRIS Rating said, as of December 2011, total proven petroleum reserves owned by PTTEP, including reserves from overseas projects, were 969 million barrels of oil equivalent (mmboe), a 7.1% decrease from 2010. Reserves from overseas projects constituted 44% of total proven reserves in 2011, a slight rise from 41% in 2010. Given the sale volume of 265,047 barrels of oil equivalent per day (boed) for 2011, the reserves should last about nine years, which is slightly lower than the 10-15 years of reserves typically held by world-class E&P companies. As of February 2012, the company had 41 projects on hand, 20 of which were in the production phase, with the remainder in the exploration and development phases.
PTTEP’s operating efficiency remains competitive, though costs have increased, comparing with international E&P peers. PTTEP’s lifting cost increased from US$3.75 per barrel of oil equivalent (boe) in 2010 to US$4.35 per boe in 2011, due mainly to the high lifting costs incurred in new production projects. Finding and development (F&D) costs also increased in 2011. The five-year average F&D cost, ending in 2011, rose to US$19.7 per boe from US$13.9 per boe in 2010. The higher F&D costs partly reflected the acquisition cost worth US$2,276 million of the Kai Kos Dehseh Oil Sands Project (KKD) in Canada. Although the KKD project will secure PTTEP’s reserves in the long term, production costs at this unconventional site will be higher than the conventional projects. PTTEP may also face execution risk until the production level of KKD ramps up in 2015.
The overall financial position of PTTEP remains strong. PTTEP’s total sales increased by 25.6% to US$5,440 million in 2011. The rise was mainly due to a 23.8% increase in its average selling price, while the sale volume was relatively flat at 265,047 boed. The operating margin before depreciation and amortization slightly decreased, dropping from 71.9% in 2010 to 70.7% in 2011. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio improved from 32.0 times in 2010 to 32.9 times in 2011. PTTEP’s liquidity remained very healthy with its cash on hand of US$1,351 million and unused credit facilities of approximately US$610 million as of December 2011.
PTTEP’s five-year expenditure plan for existing projects during 2012 to 2016 is worth US$19,624 million. Approximately 54% of total capital expenditures is for investments in Thailand, while the rest will be spent on projects in Southeast Asia (22%), North America (15%), Australasia (5%), and other locations (4%). The expenditures are aimed to increase PTTEP’s sale volume by 25% from 265,047 boed in 2011 to an average of 330,000 boed during 2013-2016. PTTEP’s operating cash flows of approximately US$3,000-US$4,000 million per year plus its cash on hand will be sufficient to finance its existing projects.
To pursue aggressive growth strategy of the PTT Group, after acquiring the KKD project in November 2010, PTTEP recently announced its intention to make a cash offer to acquire 100% stake in Cove Energy PLC (Cove) at approximately US$1,777 million. Cove’s primary assets include an 8.5% interest in Mozambique Rovuma Offshore Area 1, which is estimated to have gas resources of up to 30 trillion cubic feet. The transaction is in the early stage and uncertainty remains, depending on several conditions including the tax issue of the transaction, said TRIS Rating. — End
Company Rating: Affirmed at AAA Issue Ratings: PTTEP125A: Bt18,300 million senior debentures due 2012 Affirmed at AAA PTEP126A: Bt3,500 million senior debentures due 2012 Affirmed at AAA PTTEP135A: Bt5,000 million senior debentures due 2013 Affirmed at AAA PTTEP145A: Bt11,700 million senior debentures due 2014 Affirmed at AAA PTEP183A: Bt2,500 million senior debentures due 2018 Affirmed at AAA PTTEP195A: Bt5,000 million senior debentures due 2019 Affirmed at AAA PTEP226A: Bt3,000 million senior debentures due 2022 Affirmed at AAA Rating Outlook: Stable
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