PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)
 

Investment thesis: In our view, the estimated record 1Q12 earnings are now behind us. The current valuation doesn’t offer favorable risk-reward trade-off. Oil prices are likely to slip in 2Q12, so forward earnings will tend to decline. The stock price implies an oil price of US$103/bbl, only a 10% discount to spot price versus a 15-20% long-term average. While concerns about equity dilution are largely priced in, we feel that that there are execution risks related to project developments, as any new acquisitions would require heavy CAPEX and take considerable time to be developed commercially. We still prefer PTT to PTTEP.   
Record profit expected in 1Q12, but … We anticipate that on April 25, PTTEP will post its best-ever bottom-line of Bt15,674m, up by 4% QoQ and 43% YoY. Higher petroleum sales and petroleum price realization drove the strong profit growth. Petro sales are estimated to have recovered 2% QoQ to 257KBD, while the firm will mark a record ASP of US$65/boe versus 4Q11’s US$61/boe on an upward revision to the Arthit gas price (effective Jan) and prevailing high oil prices. Other earnings boosters for the quarter are a further FX gain and only modest exploration write-offs.
... falling oil prices raise 2Q12 earnings risk, and … We now are less optimistic on the 2Q12 outlook. Given a heavy maintenance shutdown schedule at key gas projects—Arthit, Bongkot, Yadana and Yetagun—the prospects for petro sales hinge on the start-up of Bongkot South (originally slated for June). PTTEP’s gas sales prices rose further at the April adjustment review, but the forecast retreat in oil prices may negate the effect of gas price hikes. In our view, oil prices are likely to slip in 2Q12, as Iranian risk has faded somewhat and seasonal shutdowns among Asian refiners will mean subdued demand for crude (see our March 28 Thai Energy strategy: Selective positions for a tough 2Q12 outlook.).
… Montara delay and greater write-offs—key to the 2H12 outlook: Despite expected buoyant petro sales in 2H12 with the commencement of Bongkot South and Montara and full production at PTTEP’s existing gas projects, we anticipate a weaker 2H12 outlook. Apart from the lower oil price outlook, if exploration write-offs were to rise, forward profitability would be squeezed—most of the major exploration activities slated for this year will be in 2H12. The risk of further slippage to Montara’s start-up date also remains. Although PTTEP reaffirms the start-up by 4Q12, we feel that the commencement will depend heavily on the Australian government.