PTTEP looks further afield for long-term, sustainable growth

Under the model to grow the business sustainably, efforts are focused on two legs – business expansion and preparation for new challenges.

 “Sustainability means that on the business side, we have the strength to grow and have a long business life,” president and chief executive officer Tevin Vongvanich said in an exclusive interview. “On the organisation side, we have to be efficient wherever we operate, show corporate governance and demonstrate corporate responsibility.”

It was this model that recently persuaded the company to lower its capacity target from 900,000 barrels per day for 2020 to just 600,000bpd in order to ensure that its financial and non-financial capabilities are not stretched too far.

Tevin said size would be a key to ensure business sustainability. This requires PTTEP to boost the ratio of reserves to production. While the proven reserves ratio will be raised to 10 years from eight years by 2016, the ratio of proven, probable and contingent reserves will be 40 years, up from 35 at present. 

Another focus is on return on capital employed, to ensure that the corporate rating is equivalent to the country’s rating. PTTEP projects about US$25 billion (Bt780 billion) in investment in the next five years. Annually, 40 per cent of its earnings is reserved for new investment, while 35-40 per cent is for dividends. 

Supporting the quest for growth and sustainability requires a strong organisation, with successful policies on human-resource development, risk management and technology innovation. Corporate governance and corporate social responsibility will back this up, ensuring that all stakeholders including the environment are fairly protected. 

Size will be expanded chiefly through overseas projects. By 2020, PTTEP aims to produce 100,000 barrels of oil equivalent a day from future acquisitions. The rest will be produced by the 45 existing projects. Now domestic supplies support 80 per cent of production capacity, but this will rise with more production from existing overseas projects and supplies from new overseas projects. 

Next year, the Montara production in Australia will double to 20,000bpd. Before 2021, gas from Cash Maple gas fields in the Timor Sea off northern Western Australia will be pumped up and exported (by the parent company, PTT) as liquefied natural gas (LNG).

In the fourth quarter of 2014, the Groupement Bir Seba project in Algeria will start pumping 20,000bpd. Exploration in Algeria’s Hassi Bir Rekaiz project shows successful results and by 2020, it should produce about 20,000bpd. In Mozambique – expected to be a new source of global LNG supply after Australia and Qatar – exploration yielded successful results and gas could potentially be exported to Thailand, Japan and India. It is estimated that from 2019, 10 million tonnes of gas will be extracted per annum.

“Late next year, the development cost will be clearer, along with supply contracts. This will tell us how much we need to borrow,” Tevin said.

Meanwhile, the oil-sands project in Canada will double capacity to 80,000bpd by 2018.

The Zawtika gas field in Myanmar is also expected to produce 300 million cubic feet per day next year, and 80 per cent will be exported to Thailand, along with more than 1,000mcfpd from the Yadana and Yetagun projects. More exploration will be undertaken at the M3 project in Myanmar, potentially for the initial production of 150mcfpd in 2018-2019. 

“All gas from the M3 project will be used domestically. Myanmar has helped us all these years. It’s our turn to help it,” Tevin said. 

He is confident that the company has the financial capacity to finance the expansion. After an equity injection of $3 billion late last year, the company’s debt-to-equity ratio is now at 0.3 times. Aside from $2 billion in cash, PTTEP can borrow more until the D/E ratio hits 0.5 times.

“In the industry, the ratio is low. Yet we won’t borrow excessively, or that would negatively affect our rating,” he said.

He acknowledged that the company was operating in an industry that is full of risks. Shale gas is now a game changer, which will keep oil prices near $100 per barrel for some time, he said. With more gas output in the United States, he foresees oil prices rising naturally, in line with inflation. This will require exploration and production companies to use unconventional sources, such as deep-water fields, despite higher risks. International conflicts and cooperation as well as civil sentiment pose political risks.

Owing to this, PTTEP is determined to seek potential energy sources in many countries. Shale-gas development is also in the cards.

The CEO said it was time for PTTEP to venture overseas in aggressively, as throughout the past 30 years its main task has been to substitute energy imports. But at present, 80 per cent of the oil consumed in the country remains imported, along with 20 per cent of gas, 5 per cent of electricity and 60 per cent of coal. Overseas investment will allow the company to hedge imports. 

“Our overseas output could be sold to any country. But in the end, the value will match the value of Thailand’s energy imports,” he said.

“Bongkot is our last major domestic production project. We’re now at the plateau [of domestic exploration and production] and need to grow our overseas business.”