PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Above estimates
PTTEP reported a record 1Q13 profit of Bt20,258m, up by 47% QoQ and 11% YoY. The result beat our estimate by 15% and the Bloomberg consensus by 27%, driven by lower OPEX and SG&A expenses than we had assumed.
Results highlights
The highlight of 1Q13 was good control of expenses. SG&A expenses dived to US$2.44/boe from $4.06/boe in 4Q12, due to no advisory fees for the acquisition of Cove Energy and employee bonuses. OPEX dipped to $5.56/boe from $6.39/boe in 4Q12, thanks to a lower cost of diluent for the KKD project and reduced repair & maintenance costs for the Bongkot field. Also, baht appreciation was boosted the numbers—PTTEP’s effective income tax was only 30%, down from 41% in 4Q12.
Nonetheless, the top-line dropped moderately QoQ on lower petroleum sales volume. The firm posted 291,476 boe/d versus 294,233 boe/d in 4Q12, due to the unplanned shutdown of the MTJDA project. Meanwhile, price realization rose slightly to $67.03/boe from $66.38/boe the previous quarter.  
Outlook
In our view, 1Q13 will prove to be the peak earnings period of FY13. Expenses will rise in the quarters ahead, due to the fact that PTTEP deferred planned activities from 1Q13 and, more importantly, the Montara start-up will significantly boost costs. The chief variable in our 2Q13 forecast is the scale of the impairment loss on the delay to Montara’s start-up. Management now guides for a further delay to mid May (it had earlier guided for late April). As such, we roughly estimate a worst-case scenario of an impairment loss of US$90m.   
What’s changed?
Our FY13 profit projection stands at Bt61,979m, up 8.1% YoY. The variables in our model are 1) oil price volatility, 2) exploration write-offs, 3) the start-up of Montara and 4) the impairment loss for Montara’s delayed commissioning.   
Recommendation
While the possibility of an impairment loss and a further delay to Montara’s start-up would present a headwind to forward profitability, we don’t think the risks to our FY13 earnings forecast are significant. An insurance payout of US$27m, well-controlled OPEX and stronger-than-expected S1 production will mitigate the effect on the bottom-line. Rather, we think the eventual commencement of the Montara project will generate positive sentiment, as concerns over the project’s viability will be alleviated.