PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

- To acquire Pangkah and Natuna A in Indonesia
PTTEP and Pertamina Hulu Energy (a subsidiary of Pertamina, a national oil
company of Indonesia) have jointly signed Share Purchase Agreements (SPAs)
to acquire, on a basis of 50:50, the subsidiaries of Hess Corporation which
hold 75% interest in the Pangkah project and 23% interest in the Natuna Sea
A project in offshore Indonesia. Pangkah project’s current production is
approximately 7,000 barrels per day of crude oil and liquefied petroleum gas
and 33 million cubic feet per day of natural gas, with total proved and
probable reserves (2P) of 110 million barrels of oil equivalent. Natuna Sea A
project’s current production is approximately 220 million cubic feet per day of
natural gas and 2,350 barrels per day of crude oil, with total proved and
probable reserves (2P) of 209 million barrels of oil equivalent. PTTEP’s portion
in the acquisitions is around US$650m or B21bn, which is US$9.96 per 2P
barrel, which is close to the price of previous Pangkah’s acquisition (in June
2013) of US$9.64 per 2P barrel. The current cash in hand of the company is
US$2bn; the debt to equity ratio is low at only 0.35x; and cash flow from
operation is estimated at US$4bn per year on average. Accordingly, deducting
the investment budget for the current and other planned projects (CAPEX) of
US$3-3.5bn per year, PTTEP is still capable for these acquisitions as well as
future acquisitions without an impact on its financial status. The company is
currently waiting for an outcome of two other acquisitions, which are Sin Phu
Hom (Hess holds 35% stake), which has a current production of 100 million
cubic feet per day of natural gas and Pailin (Hess holds 15% stake), which has
a current production of 360 million cubic feet per day of natural gas, that will
reach a conclusion by December 2013.
- Up forecast to reflect business acquisition and weak Baht
We revise up our earnings forecasts for FY2014-2015 to reflect 1) the
aforementioned acquisitions of Hess in Indonesia, which will increase PTTEP’s
production capacity in 2014-2015 by 2.8% on average to 334,000 and
344,000 barrels per day, respectively, thus resulting in 2.3% increase in
FY2014-2015 net profit forecast and B2.74/share increase in the fair value
and 2) an up revision of a Fx rate assumption since 2014 to B31.5/US$ from
B30/US$, resulting in a 5% increase in FY2014-2015 net profit forecast and
B2/share increase in the fair value. Consequently, combining all these factors,
new FY2014-2015 net profit forecast will increase 7.3% from previously. The
profit in 2014 would grow 15.4%yoy due mainly to a 15.1%yoy increase in
total production as Pangkah and Natuna Sea A projects will start running since
1Q14, while 300 million cubic feet per day gas production of Zawtika project
in Myanmar will start running since 2Q14, and the company will also be able
to recognize production capacity from Montara project for a full year and at a
higher rate.
- New 2014 fair value is B217…Buy
Under the new forecast, new 2014 fair value (DCF) is B217 (from B212),
implying 32% upside. ROE is as high as 17.9%, among the top of the region.
Buy.