PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)
Investment thesis: We attended PTTEP’s analyst meeting yesterday. Although there are still plans for foreign acquisitions, we feel that recap risk has ebbed, due to intense competition and expensive asset prices. The start-up of Montara will potentially catalyze the share price, as it will ease concerns about PTTEP’s execution ability and buoy the firm’s profitability. But we still prefer PTT for now.
International acquisitions—an aspirational target still stands … The recently appointed CEO, Tevin Vongvanich, said that PTTEP will continue seeking new assets. He reiterated a 2020 petro sales target of 900KBD and said acquisitions will be needed to achieve it. Although the firm will also pursue organic expansion through intensive exploration, most of the firm’s existing fields are mature, so high production rates are unlikely to be sustained over the longer-term.  
…, but recap risk has ebbed: Management said that LNG or unconventional gas (“shale gas”) would be of interest as new assets. Given the unsuccessful bid for Cove and the fact that there has been a flurry LNG asset purchasing activity across the globe, we view that PTTEP find it difficult to identify reasonably-priced properties—prices are getting increasingly expensive. The implication is that recapitalization concerns have eased (unless an acquisition materializes). The CEO said PTTEP will form a strategic partnership, probably within PTT group, to pursue international acquisitions.
Eyes on Montara start-up: The firm reassured that Montara will start-up by 4Q12. Construction work has progressed as planned—modifications to a floating production, storage and offloading (FPSO) unit were completed; the unit will soon undergo a trial run. PTTEP claims that the Australian govt is impressed with its strict monitoring procedures. But, we think it’s too early to assume that the firm will easily get approval to commence operations. The “Integrated Commissioning” stage is one of the most critical parts of Canberra’s screening criteria. 
Falling oil pice might squeeze 2Q12 ASP: PTTEP remains optimistic about forward gas prices. Following the latest upward revision in April, prices are likely to be revised up again at the October adjustment review—management projects this year’s gas price realization at US$7.5/mmbtu versus 1Q12’s US$7.2/mmbtu. However, assuming that oil prices remain at current levels, we anticipate that ASP would have peaked in 1Q12 and will trend downward in 2Q12 through 3Q12. Nevertheless, the start-up of Montara might boost price realization in 4Q12.