PTTEP outlook is negative: S&P

 The negative outlook reflects the view that PTTEP's growth plans could lead to increased debt and weaken credit metrics outside its expectations for the rating. The outlook also reflects some uncertainty over the outcome of the company's merger and acquisition activities.
 PTTEP's rating at 'BBB+' is confirmed, but the negative outlook means the rating can be downgraded.

 "We revised the outlook to negative to reflect our view that PTTEP's debt is likely to remain elevated for the next two years due to the company's sustained growth strategy. Standard & Poor's had earlier expected PTTEP would generate sufficient operating cash flow to reduce debt," it said in a statement released today. 
 The rating agency noted that PTTEP should be unable to use much of its operating cash flow to fund its stated growth plan.
 PTTEP's recent US$1.8 billion nonbinding offer to acquire U.K.-based Cove Energy Plc reflects its growth strategy. The outcome of that offer is uncertain. If the company cannot fund acquisition investments internally, it is likely to partially use debt, which could weaken its credit metrics, S&P said. 
 "We therefore believe PTTEP's financial metrics may breach our downgrade triggers over the next two years," said Standard & Poor's credit analyst Andrew Wong. "PTTEP's ratio of debt to capital was 42.5 per cent as of December 31, 2011 - somewhat weak and with no room to weaken for the current rating, in our view. We expect the ratio to remain above 40 per cent for the next 12 months."
 High product prices and improving output should ensure that cash flows for the next 12 months should remain strong enough to fund existing developments and operational investment, said Wong.

PTTEP generated about 60 per cent of net profit of PTT Plc, the national oil and gas company.

PTT today reported the quarterly earnings of Bt37.39 billion, which went up 7.1 per cent year on year thanks to the higher fuel prices.

In the same period last year, the net profit was at Bt34.92 billion.
 In the first quarter, Dubai crude oil averaged at US$116.1 per barrel against $100.5 in the same period last year.
 In a statement to the Stock Exchange of Thailand, PTT Group's total revenue hit Bt692.1 billion, up 28 per cent on year.
 PTT explained that over half of its earning before interest, tax, dividend and amortisation (EBITDA) came from the exploration and production. It accounted for Bt35.6 billion, from a total of Bt58.7 billion.
 The rest included Bt15.97 billion from natural gas business and Bt4.79 billion from retail oil business which increased by 36.7 per cent and 33.8 per cent on year.
 PTT however showed a 44.3 per cent drop in EBITDA from petrochemical business.
 PTT contributed 42 per cent of the group's net profit, largely from natural gas and retail oil businesses. The rest was generated by subsidiaries.

In the statement, S&P said that it may lower the rating on PTTEP if:

We lower the ratings on PTT and Thailand.
PTTEP departs significantly from the financial targets that PTT established, thereby affecting PTTEP's stand-alone credit profile and pushing the ratio of debt to EBITDA above 1.0x and debt to capital to 45% on a sustained basis. Debt-financed acquisitions or capital expenditure could cause such deterioration.
Operational problems at PTTEP's development projects result in significant cost overruns or delays in production growth.
Business integration with PTT shifts considerably--such that PTT's shareholding in PTTEP materially declines below 50 per cent--changing our assessment of PTTEP's role and link with the government.
Conversely, we could revise the outlook to stable if:

PTTEP maintains or improves its existing business risk profile; and
The company executes its growth strategy over the next two years and sufficiently grows its reserve and production base while maintaining credit metrics that are commensurate with the 'BBB+' rating. For this to occur, we would expect the company to maintain a lease-adjusted ratio of total debt to EBITDA of about 1.0x and debt to capital below 40 per cent on a sustainable basis.