Moody’s gives PTTEP a tick despite oil block winding back

PTTEP reported that it had ceased operations at the part of its S1 oil block that falls under the jurisdiction of the Agricultural Land Reform Office (ALRO). 
The move came after the Supreme Administrative Court revoked the ALRO procedure that allows the use of natural resources for non-agricultural purposes in supervised areas. 
The partial halting in exploration and production at the S1 oil block, Thailand’s largest onshore crude oil field, will reduce PTTEP’s oil and gas sales volume and result in lower operating cash flow and weaker credit metrics, Moody’s said.
It said a permanent suspension would further shrink the company’s declining hydrocarbon reserves.
As a result of the partial suspension, Moody’s expects that PTTEP’s total sales volume in 2017 will fall 4 per cent, or 12,000 barrels of oil equivalent per day, from the agency’s original expectation of 310,000 boe. 
“Consequently, we project that the company’s leverage in 2017, as measured by retained cash flow/adjusted debt, will weaken to 54 per cent-55 per cent from our original expectation of 60 per cent,” it said. 
“Nonetheless, the company’s PTTEP’s RCF/adjusted debt remains well above our quantitative guidance of 25 per cent for its Baa1 rating.
‘Even if the partial suspension becomes permanent, we expect PTTEP’s RCF/adjusted debt in 2018-19 to be around 60 per cent, which would be higher than 2017 levels, because improving crude oil and natural gas prices will more than offset the company’s lower sales volume during the period. 
“This reflects our assumption that PTTEP’s average selling price will increase to US$37.80 (Bt1,287)-$38.00 per barrel of oil equivalent in 2018-19 from $36.20 in 2017, while its sales volume will fall by 18,000 barrels of oil equivalent per day.”