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 PTTEP’s subordinated capital debentures at “AA”. The outlook remains “stable”. The two notches below the corporate credit rating reflect the deferability and subordinated nature of the debentures.
The ratings reflect the company’s leading position in the petroleum exploration and production (E&P) industry in Thailand, its sufficient proved reserves, the support it receives as the E&P arm of the national oil and gas company, and very strong financial profile. The ratings are partially constrained by execution risks facing its overseas operations. The “stable” outlook reflects TRIS Rating’s expectation that PTTEP will be able to maintain its healthy financial position. The company’s interest-bearing debt to equity ratio is expected to stay below 0.5 times, complying with the company’s policy. The level of leverage takes into consideration potential new acquisitions and the cushion for the fluctuations in petroleum prices and higher operating risks from overseas operations.
PTTEP is the leading petroleum E&P company in Thailand. The company was established in 1985 to hold petroleum concession rights on behalf of the Thai government. As of February 2014, PTT PLC (PTT), the national oil and gas company, held a 65.3% stake in PTTEP. PTT and PTTEP are considered state enterprises. As the E&P arm of PTT and the Thai government, PTTEP has capability to leverage its position to participate in petroleum projects with high potential, both in Thailand and abroad. As of February 2014, the company had 42 E&P projects on hand, of which 21 projects were in the production phase, while the remainders were in the exploration and development phases.
PTTEP’s business profile is very strong. At the end of 2013, PTTEP owned proved petroleum reserves, including reserves from overseas projects, of 846 million barrels of oil equivalent (mmboe), a 6.1% decrease from the level in 2012, as production was greater than additional proved reserves in 2013. At the end of 2013, reserves from overseas projects constituted 47% of total proved reserves.
In 2013, PTTEP’s production volume increased by 4.8% to 329,371 barrels of oil equivalent per day (boed). The increase was due to the start-up of the Montara project in June 2013 and a full year operation of the Bongkot South project. Given the current production rate, the reserves are estimated to last about seven years, which is lower than the 10-15 years of reserves typically held by world-class E&P companies.
PTTEP’s operating efficiency remains competitive compared with international E&P peers. However, PTTEP’s lifting cost increased from US$4.28 per barrel of oil equivalent (boe) in 2012 to US$4.88 per boe in 2013. The rise reflected the high operating cost of the Montara project and maintenance cost for the Bongkot project. The five-year average finding and development (F&D) cost rose to US$33.49 per boe in 2013 from US$28.97 per boe in 2012. The higher F&D cost reflected the challenges of adding new reserves from new projects, especially overseas projects, plus the acquisitions during the past five years, which contributed more contingent resources rather than proved reserves. In 2013, PTTEP acquired a 11.5% stake in the Natuna Sea A project, a gas field in Indonesia, from Hess Corporation for US$325 million. This project is currently in the production phase. As a result, PTTEP’s production volume will rise by approximately 4,500 boed or 1.4% of the production volume.
PTTEP’s overall financial profile remains very strong and the company’s financial performance in 2013 was in line with TRIS Rating’s expectation. In 2013, PTTEP’s total sales increased by 7.2% to US$7,172 million. The rise was mainly due to a 6.1% increase in sales volume to 292,629 boed, plus a 1.1% increase in the average selling price to US$65.58 per boe. Earnings before interest, tax, depreciation, and amortization (EBITDA) increased from US$5,099 million in 2012 to US$5,374 million in 2013. The company’s capital structure is healthy. PTTEP’s total adjusted debts were US$4,261 million at the end of 2013. The adjusted debts to capitalization ratio slightly improved from 27.5% at the end of 2012 to 26.8% at the end of 2013. PTTEP’s liquidity remains very healthy, with cash on hand of US$2,357 million and unused credit facilities of approximately US$400 million at the end of 2013.
PTTEP’s capital expenditure plan for existing projects during 2014-2018 was approximately US$16,404 million. Approximately 52% of the total is for investments in Thailand, while the rest will be spent on projects in Southeast Asia (22% of the total), North America (11%), the Middle East and Africa (14%), and Australasia (1%). The capital expenditures are part of the company’s plan to double its production volume from approximately 329,000 boed in 2013 to 600,000 boed by 2020. The additional production of 271,000 boed will come from PTTEP’s existing projects, which are currently in the development and exploration phases, plus new acquisitions of oil and gas projects that are already in production or very near production phase. Most of the additional production from the existing projects will come from overseas projects, such as the Rovuma Offshore Area 1 project in Mozambique, the oil sand project in Canada, and the M3 project in Myanmar. These projects are expected to commence operation in 2018-2019.
During 2014-2016, TRIS Rating’s base-case expects the company’s EBITDA to stay in a range of US$5,500-US$5,800 million per year, based on average sales volume of 330,000 boed and average selling price of US$64.6 per boe. The company’s capital expenditure plan during 2014-2016 is approximately US$10,024 million. The company’s total debt repayments during 2014-2016 are approximately US$1,140 million, of which US$390 million will be due in 2014, US$750 million in 2015, and no repayment in 2016. Given the expected levels of EBITDA, capital expenditures, and debt repayments, the adjusted debts to capitalization ratio is expected to stay below 26% during 2014-2016.
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