PTT Exploration & Production

PTT Exploration & Production Plc

Investment thesis
PTTEP has the best earnings visibility within Thai Energy space—the prospects for FY14 are good, backed by 15% YoY production growth with scope for upside. The likelihood of PTTEP winning more of Hess’s assets would potentially catalyze its share price, in our view. If it were to win all the remaining bids, FY14 petro sales would rise by 8% from the current target. In order to factor in the firm’s recently announced CAPEX increase, we have trimmed our DCF-derived target price to Bt177 from Bt182.50 previously. 
FY13 NPAT estimate cut on a diminished expectation for 4Q13 …
We have fine-tuned for baht depreciation during 4Q13, so have reduced our FY13 NPAT model by 5% to Bt62,388m. That implies 4Q13 NPAT of Bt13,661m—down 23% QoQ and flattish YoY. The assumed QoQ dive is mainly due to an income tax hike and FX losses totaling US$130m as a result of baht weakness. But we maintain our core profit estimate unchanged at Bt17,106m, basically flat QoQ and up 12% YoY. Baht depreciation against the dollar, recovering sales volume and strong oil prices would have supported the solid number. PTTEP guides for 4Q13 petro sales of 296KBD, up from 286KBD in 3Q13, boosted by the resumption of gas output after a shutdown.
…but prospects for FY14 NPAT still good
PTTEP has trimmed its FY14 petro sales guidance from 340KBD to 337KBD. The new number is in line with our model. It incorporates a lower Thai GDP growth assumption of 3.5-4%. Pegged to a Dubai crude price of US$100/bbl, we still expect modest FY14 NPAT growth of 12% YoY. Our model indicates that profit will start an uptrend in 1Q14, led by a petro sales rise to 300KBD, further petro sales growth in 2Q14 and will peak for the year in 3Q14. Zawtika will start producing gas in late Feb and Montara is slated to boost oil output to 30KBD by end-March from 17KBD currently.      
Volume expansion to lead profit growth; scope for output upside
Slower-than-expected GDP would squeeze Thailand’s gas demand and perhaps PTTEP’s gas sales. If that were to happen, we are optimistic that PTT would cut expensive LNG imports. Montara output slippage is another risk—PTTEP has identified a technical problem with one of its new development wells (“H-5”). But under the worst-case scenario, we see only 1% impact on its petro sales target. In contrast, the scope for upside is much greater, particularly if PTTEP were to win the bids for remaining Hess assets, which would altogether boost its output by 8% from its current target. 
Eyes on acquiring Hess’s Indonesian and Thai assets
PTTEP and Pertimina jointly bought Natuna A from Hess in late Dec, but for the Pangkah field existing non-Hess shareholders have the right to match their offer. If no existing shareholder makes a counter offer by Feb, the field will add 2.8% to PTTEP’s petro sales. The Pailin and Sinphuhorm fields in Thailand would make for a bigger accretion of 17KBD (~5.2% of the FY14 sales target), as PTTEP has bid for them itself, not as part of a consortium—the firm believes the winning bids will be announced by March.