PTT Exploration & Production

PTT Exploration and Production Plc (PTTEP)

- Restructure KKD ownership to hold 100% interest in THSL
PTTEP announced to restructure the ownership of Oil Sands Kai Kos Dehseh
(KKD) project in Canada, in which PTTEP had previously held a 40%
participating interest and Statoil Canada Limited (SCL) held the remaining
60% participating interest. The project covers five proximate areas: Leismer,
Corner, Thornbury, Hangingstone, and South Leismer; of the five areas,
Leismer was the only project that has currently been producing at a capacity
of 16,000 barrels a day in 2013. In doing this, PTTEP will exchange 40% of
its interest in Leismer and Corner (LC) for an additional 60% interest in
Thornbury, Hangingstone, and South Leismer (THSL) and receive cash of
US$200m plus the additional amount calculated from a working capital
adjustment. After the restructuring, PTTEP will own and operate 100% of
THSL, while SCL will own and operate 100% of LC. The agreement will take
effect by 3Q14 and after that PTTEP will start the preliminary Front End
Engineering and Design (Pre-FEED) for the first production phase of
Thornbury field, as well as prepare for the seismic acquisition and drilling in
2014-2015.
- Benefiting PTTEP. Reduce CAPEX, protect liquidity, gain full operation
This is considered as a good solution for the current situation because, since
commencing production in 2011, KKD has been suffering net loss, already
recognized at more than US$100m in total or a net loss of US$33m a year on
average. Moreover, if WTI crude oil price still stands below US$105/barrel,
KKD will have to face continuous losses in the future under its current
capacity utilization. Moreover, the new ownership structure will help increase
financial liquidity for the company in the next five years (2014-2018). In the
latest investment plan, PTTEP needs as much as US$2.9bn in CAPEX (from
its 40% participating interest in the project) for increasing production
capacity of old Leismer field to 20,000-25,000 barrel a day, Leismer
extension field to 20,000 barrel a day, and Corner field to 40,000 barrel a
day. However, after changing to own 100% interest in THSL, CAPEX would
decrease to US$1.6bn; this means, with the lower investment budget, PTTEP
will be able to save funding cost, which preliminarily estimated at the same
amount of the profit that would disappear from LC projects or around B1.5bn
a year. We, therefore, maintain our forecast. Nevertheless, with its 100%
participating interest in THSL, PTTEP will operate 100% of the projects and
thus be able to make investment plan consistent with its strategy.
Furthermore, in the long run the oil sands business would revive from both
improving selling price and transportation facilities.
- Buy. PER still lower than regional average. Dividend yield is 3-4% p.a.
We derive 2014 fair value (DCF) at B212. We recommend buying PTTEP for
its high upside of 36% and PER of only 8.5x, which is lower than the regional
average. Moreover, PTTEP has announced to pay 2H13 dividend at B3/share
or 2H13 dividend yield of 1.9%