PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

PTTEP reported a disappointing 4Q13 profit of Bt7,427m, down by 58% QoQ and 46% YoY. The result missed our estimate by 46% and the Bloomberg consensus by 43%, due largely to heavier G&A, DD&A and exploration costs than we had assumed. Also, the firm booked unexpected losses on oil hedging instruments and posted a spike in interest charges.      
Results highlights
The highlight of 4Q13 was heavy one-off adjustments (quite common in the fourth-quarter) impacting on G&A and interest expenses. The G&A number doubled to US$5.22/boe from 3Q13’s $2.69/boe, about 50% above our model. Interest charges rocketed up 45% QoQ—management cited that capitalized interest expenses on under-developed projects were re-categorized to the income statement. Exploration expense jumped to $2.07/boe from $1.82/boe in 3Q13, due to a jump in seismic surveying and geology & geophysics expenses. Last but not least, DD&A expense edged higher than we had envisaged to $16.68/boe from 3Q13’s $15.55/boe.
Also, PTTEP reported YE13 proved reserve of 846mboe, down from YE12’s 901mboe, but as expected. This translates inito RRR of 0.82x with a remaining reserve life of seven years. Increased exploration activities at Zawtika, M3, the Cash/Maple projects (Australia) and FID (Mozambique) are the drivers of the reserve outlook this year. 
On the positive side, posted petro sales of 299,716boe/d exceeded our expectation slightly, due to sales recognition of Vietnam 16-1’s associated gas (~2,700boe/d for PTTEP’s stake) as a result of oil production. However, the profit contribution was marginal, as the gas sales price was only US$0.94/boe, weighing down its ASP to $64.48 versus $65.71/boe in 3Q13. Stripping out the Vietnam 16-1 gas price, adjusted ASP would be US$66.46/boe, as we had expected.  
Outlook
We remain optimistic on PTTEP’s FY14 operational outlook—an uptrend will start in 1Q14. Petro sales will rise to 300KBD, further in 2Q14 and peak for the year in 3Q14. Zawtika starts delivering gas in late Feb and Montara is slated to boost oil output to 30KBD by end-March from 17KBD currently.