PTT Exploration & Production Plc

PTT Exploration & Production Plc
3Q13F aided by fewer non-recurring negatives. 3Q13F net profit is expected at
Bt15bn, up 41% QoQ but still down 14% YoY. Key to the QoQ growth is fewer one-off
negatives, helping offset the weaker Thai baht. We expect operating profit to be flat
QoQ: though higher oil price raised average selling price (ASP) to US$66.2/BOE (+1.6%
QoQ), this will be offset by a 1.6% QoQ slip in average sales volume to 288kBOED
brought by the unplanned shutdown of PTT’s gas separation plant and the shutdown
of Vietnam 16-1 to tie in an oil field. Montara startup could not make up for this.
Montara starting to generate cash. After four years of heavy outlay, Montara is
finally bringing in cash. Production commenced in late 2Q13, with the first shipment to
PTT in 3Q13. 3Q13F average production is 5k/bd and this will be ramped up to 20kbp/d
in 4Q13F after all subsea tie-back systems are in place and the wellhead platform (H5)
starts up in mid-December. Management expects production rate could peak at 30kb/d
in 4Q13, though this cannot be sustained for long. The beauty of this project is the
quality of oil, which is priced at a ~US$3/bbl premium to Brent crude. This is good for
ASP since most of PTTEP’s liquid products are priced at a discount to Dubai.
More positive outlook for KKD. After a loss of ~US$35mn in 1H13, mainly in 1Q13,
management expects the project to be in the black in 3Q13F on higher product price,
which is linked to WTI crude oil price. A higher WTI price helps lift selling price of
bitumen from the oil sand project, though profitability will remain low until more of
the expansion phase can be started in 2017.
Zawtika update. Zawtika project is moving as planned, with the processing and living
quarters platform beginning the journey to the site in early October. The first gas is
expected in late 2013, with earnings in 2Q14. The initial gas will be sold to Myanmar as
outlined in the long-term gas sales agreement (~20% of total daily contracted quantity
of 300mmcfd). Zawtika will be key to 2014 volume growth at 13% of total production.
Bidding for Hess underway. PTTEP is bidding for Hess’ interest in oil and gas projects
in ASEAN, including 35% in Sinphuhorm (where PTTEP already owns 20%), 15% in Pailin
(PTTEP has 45%), 75% in Pangkah and 23% in Natuna Sea Block A in Indonesia. Hess also
owns 50% in JDA Block A-18 in Malaysia but this was not put up for sale. PTTEP does
not believe this investment will be material to earnings. The value of the assets has
not been disclosed. The bid outcome could be announced by late 2013.
Valuation compelling; oil price a catalyst. PTTEP’s valuation is still compelling at
9.2x 2014 P/E, in line with regional peers but lower than historical average of 12-13x.
Dividend yield could be above 4% for the next three years. Higher oil price could be a
short-term share price catalyst while concerns about its operations have eased
considerably compared with three months ago. We still BUY with mid-2014 of Bt210.