PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP) 
Investment thesis
PTTEP remains our preference within Thai Energy space. It has the best earnings visibility in the sector—an uptrend through 2H13. The prospects for FY14 are good, backed by 15% YoY production growth. The likelihood of PTTEP winning some of Hess’s assets, particularly in Thailand, and a concrete gas offtake agreement for its 8.5% stake in the Mozambique field, would potentially catalyze the share price, in our view. 
3Q13 revisited—higher ASP to outweigh effect of lower volume
PTTEP guides for 3Q13 petro sales of only 292KBD (lower than our earlier estimate of 300KBD) due to output slippage at oil projects in Vietnam resulting from tie-in processes and an overlapping plant shutdown in 3Q13. We still expect a solid bottom-line of Bt15,693m, up 47% QoQ. Higher ASP, buoyed by the spike in crude prices and a negligible net-loss on baht depreciation (we estimate US$68.7/boe and Bt100m versus 2Q13’s $65.2 and Bt5bn) should have outweighed the effect of volume slippage. Exploration write-offs would also have declined to $10-12m from $20m in 2Q13.        
FY13 volume estimate down, but profit forecast upped slightly
While we have trimmed our PTTEP FY13 sales volume forecast to 293KBD from 297KBD, we have upped our profit projection 1% to Bt63,676m. Higher ASP and lower assumed exploration write-offs should offset the effect of lower sales volume. No major exploration wells will be drilled in 4Q13, so our write-off assumption falls to Bt3.5bn from Bt4.5bn. Despite the ongoing tie-in process at projects in Vietnam, petro sales should rise to 297KBD in 4Q13 on an output ramp-up at Montara and fewer maintenance shutdowns. Based on MS’s crude forecast of US$105/bbl and the Oct rise in in gas prices to $8/mmbtu (from $7.9/mmbtu), we expect a 4Q13 profit of Bt17bn.
Acquisition on Hess assets by year-end
Hess has put stakes in two fields in Indonesia (Pangkah and Natuna A) and two in Thailand (Pailin and Sinphuhorm) under separate bidding—the four blocks have a total production volume of 45KBD. While PTTEP aims to bid for all four, the firm said its chances of winning bids in Indonesia are slim, given the intense competition. It currently assumes it will win the two Thai blocks. If that were to be the case, the two would add 15KBD to its petro sales (~5% of current production).
Eyes on offtake agreement for Mozambique
Apart from the output growth profile outlook with the start-ups of two new projects—Zawtika (1Q14) and Algeria (3Q14)—we believe concrete offtake agreements for the Mozambique field would catalyze the share price. The field’s operator, Anadarko, has so far signed only one offtake agreement for less than 1mtpa, far short of the planned 10mtpa. As such, a final investment decision over the LNG project may be delayed from its 1Q14 schedule. The slow progress is due to buyers waiting to see what happens with US shale gas prices. But with Indian O&G operators now holding about 30% in the field and PTT intending to commit to around 2.6mtpa of LNG, we are optimistic that the planned offtake agreements will eventually be signed.