TRIS Rating has assigned the rating of “AAA” to the proposed issue of up to Bt19,600 million in senior debentures of PTT Exploration and Production PLC (PTTEP). The proposed issue is divided into Bt8,200 million due within 2019, and Bt11,400 million due within 2029. At the same time, TRIS Rating has affirmed the company rating of PTTEP and the ratings of its current 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 proceeds from the new debentures will be used for investment and working capital.
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 31 March 2014, the company had 42 petroleum E&P projects across 10 countries, which 23 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). Reserves from overseas projects constituted 47% of total proved reserves. Given the production volume of 329,371 barrels of oil equivalent per day (boed) in 2013, 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$4.88 per barrel of oil equivalent (boe) in 2013 to US$5.35 per boe in the first quarter of 2014. The rise reflected the high operating cost of the Montara project.
PTTEP’s overall financial profile remains very strong and the company’s financial performance in the first quarter of 2014 was in line with TRIS Rating’s expectation. In the first quarter of 2014, PTTEP’s total sales decreased by 0.7% year-on-year (y-o-y) to US$1,785 million. PTTEP’s average selling price dropped by 3.1% y-o-y to US$64.92 per boe, while its sales volume increased by 2.5% to 298,621 boed. The increase in sales volume mainly reflected the sales from the Montara project which started production in mid-2013 and the acquisition of Natuna Sea A project in late 2013. The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) was US$1,285 million, which accounted for about one-fourths of TRIS Rating’s expectation for the full year of 2014. The company’s capital structure is healthy. PTTEP’s total adjusted debts were US$4,243 million at the end of March 2014. The adjusted debts to capitalization ratio remained at 26.8% at the end of March 2014. PTTEP’s liquidity remains very healthy, with cash on hand of US$3,071 million and undrawn credit facilities of approximately US$1,000 million at the end of March 2014.
PTTEP’s capital expenditure plan for existing projects during 2014-2018 was approximately US$16,404 million, which 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 30% during 2014-2016.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2014, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.