PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Investment thesis
Last Friday, we accompanied PTTEP executives on a site visit to Khonkaen Province, where the firm is exploring for petroleum. The drilling is a key component of the firm’s exploration of the northeastern region. Apart from organic expansion, they expressed strong interest in acquiring Hess Corp’s Indonesian and Thai assets. If the firm were to win the assets, investor interest in the stock would increase, as the acquisitions would boost the firm’s profit growth profile—initial bid submissions close in Aug. 
Background
PTTEP won concession blocks L21/48 and L28/48 in Dec 2006. The two blocks cover an area of 3,764sq.km and are located in Khonkaen and Chaiyaphum provinces, Northeastern Thailand. The firm currently holds 70% of the two blocks with Resourceful Petroleum (Thailand) holding the balance. PTTEP drilled its first hole in Block L28/48 in 4Q11, the “Ratana-1” well, but plugged it because of well-testing problems. In 1Q13, it completed preparations for the “Ratana-2” well, which it started drilling and fracturing in May, as scheduled. 
Most potential and under-explored northeastern area
According to Mr Somkiet Janmaha, EVP of the Geosciences, Reservoir Engineering & Exploration Group, the Khorat Plateau of the northeast of the country is under-explored and may have the most potential for petroleum production of any onshore areas of Thailand. He claimed that only 47 wells have been drilled in the northeast against 1,100 wells in the Central Plains. Furthermore, he said that earlier drilling pointed to the possibility of significant shale gas reserves in the northeast.
Hess assets up for grabs
Apart from organic expansion, Ms Penchun Jarikasem (CFO) said the firm is also enthusiastic to acquire Hess’s assets in Thailand and Indonesia. Hess’s Thai assets in particular would fit well with PTTEP’s existing operation—the onshore Sinphuhorm Field (Hess holds 35% and is the operator) and 15% stakes in two of the blocks that make up the offshore Pailin Field (see our PTTEP report “Potential gas assets up for grabs” dated May 10). In Indonesia, Hess is looking to sell its 75% stake in the offshore Pangkah Field (it produces only 30mmcfd, but has a GSP onshore; Hess is the operator) and its 23% stake in the offshore Natuna A Field, which produces about 150mmcfd of gas and some condensate and oil. Combined production rates from those fields approximate 30KBD.
No further recap necessary for acquisitions
In our view, PTTEP seems very confident that it will win the bids for Hess’s Thai assets—they are a very good fits with its existing operations, so it could afford to pay more for them than any other potential buyer. This was the case with the Sirikit Oil Field, which PTTEP bought from Shell in early 2004. Sirikit now produces 30KBD, up from 20KBD in 2003. Even if the firm were to buy all Hess’s Thai and Indonesian assets, management is confident that it wouldn’t need to recapitalize—it has US$2bn of cash on-hand and debt capacity of another US$2bn, which would be far more than would be necessary to fund the purchases (Hess said in a statement that it was looking to raise US$2.5bn from the sale of the assets.