TRIS Rating has affirmed the company rating of PTT Exploration and Production PLC (PTTEP) and the ratings of PTTEP’s senior debentures at “AAA”. TRIS Rating has also affirmed the rating of “AA” for PTTEP’s subordinated capital debentures with “stable” outlook. The ratings continue to reflect the company’s leading position in the petroleum exploration and production (E&P) industry in Thailand, its solid asset base, the support it receives as the E&P arm of the Thai government, and its healthy financial profile. The ratings also take into consideration the execution risk of its overseas operations. The “stable” outlook reflects TRIS Rating’s expectation that PTTEP will be able to maintain its healthy financial position, despite the large capital expenditures planned during 2013-2017. The company’s financial policy is expected to remain conservative to accommodate the high fluctuations in petroleum prices and higher operating risk from overseas operations.
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 15 February 2013, 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.
As of December 2012, proven petroleum reserves owned by PTTEP, including reserves from overseas projects, totaled 901 million barrels of oil equivalent (mmboe), a 7.1% decrease from 2011. Reserves from overseas projects constituted 44% of total proven reserves in 2012. Given the 2012 production volume of approximately 314,000 barrels of oil equivalent per day (boed), the reserves should last about eight years, which is lower than the 10-15 years of reserves typically held by world-class E&P companies. As of February 2012, the company had 44 projects on hand. Nineteen projects were in the production phase, with the remainder in the exploration and development phases.
PTTEP’s operating efficiency remains competitive compared with international E&P peers. PTTEP’s lifting cost slightly decreased from US$4.35 per barrel of oil equivalent (boe) in 2011 to US$4.28 per boe in 2012. The drop reflected the ceasing of operations of the Arthit North project in November 2011. Finding and development (F&D) costs increased in 2012. The five-year average F&D cost, ending in 2012, rose to US$28.97 per boe from US$19.70 per boe in 2011. The higher F&D costs partly reflected the acquisition of Cove Energy PLC (Cove). PTTEP spent US$1.9 billion to buy 100% share of Cove in 2012. Cove’s primary asset is an 8.5% interest in Mozambique Rovuma Offshore Area 1. This area has estimated gas resources of up to 65 trillion cubic feet (tcf.) As the project is in the development phase, the Mozambique project did not contribute any additional proven reserves to PTTEP. The project plans call for production of liquefied natural gas (LNG), with an initial capacity of 10 million tonnes per annum. Once the final investment decision is made, the Mozambique project will add approximately 170 mmboe of additional expected proven reserves in 2014. According to the plan, the Mozambique project will need five years (2014-2018) until the first cargo will ship in 2019.
For 2012 operations, PTTEP’s total sales increased by 23.0% to US$6,690 million. The rise was mainly due to a 16.9% increase in the average sales price, plus an increase in sales volume by 4.1% to 275,923 boed. The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) increased from US$4,064 million in 2011 to US$5,014 million in 2012.
The overall financial profile of PTTEP remains strong. The company’s capital structure was strengthened after the successful capital increase of approximately US$3,000 million in December 2012. While its total adjusted debt remained at approximately US$4,000 million at the end of 2012, its adjusted debt to capitalization improved from 39.2% at the end of 2011 to 27.5% at the end of 2012. PTTEP’s liquidity remained very healthy, as it had cash on hand of US$2,292 million and unused credit facilities of approximately US$1,100 million as of December 2012.
PTTEP’s five-year capital expenditure plan calls for spending approximately US$14,767 million for its existing projects. Approximately 56% of the total capital expenditure is for investments in Thailand, while the rest will be spent on projects in Southeast Asia (21%), North America (16%), Australasia (3%), and other locations (4%). The objective of capital expenditure plan is to double the production volume, from approximately 314,000 boed in 2012 to 600,000 boed by 2020, an increase of 286,000 boed. The additional production of 286,000 boed needed to fulfill PTTEP’s target will mainly come from its existing projects in development and exploration phases. Most of the additional production will be derived from overseas projects including Montara project which is targeted to commence operation in the second quarter of 2013, delaying for almost one year, due to stricter work procedures required by the Australian government after the oil leak and fire incidents during August-November 2009. In addition to exploration and development risks inherited in most projects, PTTEP may face execution risk connected with its overseas operations.
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