PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

- Hess acquisition successful as projected
PTTEP eventually signed a share purchase agreement (SPA) for acquiring
100% stake from two subsidiaries of Hess Corporation in Thailand, which are
Hess Thailand Holdings II Limited (HTH) and Hess Exploration Thailand
Company Limited (HETCL). The two companies have got the concessions for
1) blocks B12/27 and G7/50 in Contract 4 project (Hess holds 15%
stake), with Pailin as its major field (since PTTEP is already holding 45%
stake in the project, the company’s share will increase to 60% after the
acquisition), and 2) blocks EU-1 and E5 North of Sinphuhorm project
(Hess holds 35% stake) (since PTTEP is now holding 20% stake in the
project, the company’s share will increase to 55% after the acquisition;
details are on the next page). The value of the acquisition proportional to
PTTEP’s shareholding is approximately US$1bn or B32bn, which is
US$11.8/proven and probable (2P) petroleum reserves, close to the average
market price of US$10-13/2P reserves. However, considering PTTEP’s cash
flow of US$2.3bn, low debt to equity ratio of 0.34x, and expected cash flow
from operation of around US$4bn a year, the company is ready for this
business expansion.
- Up earnings forecasts since 2015 onward
Hess acquisition will increase PTTEP’s sales and production volume in 2014
and 2015 by 3.1% and 4.4% to 335,000 and 359,000 million barrels a day.
Nevertheless, since we have previously projected the sales volume to be
lower than the forecast by 10,000 barrels a day because of 1) Zawtika project
in Myanmar (M9) that had to delay a commercial production of natural gas for
selling back to Thailand (240 million cubic feet a day) for two months from 1
April 2014 previously scheduled and 2) the cancellation of drilling of the H5
well of Montara project, which would make total production target of Montara
decrease around 20.8% to only 19,000 million barrels a day in 2014, this
negative factor would negate the positive news. We, thus, maintain our
FY2014 profit forecast but revise up the forecasts since 2015 onward, as
shown in the table.
- New 2014 fair value is B195
Under the new forecast, 2014 fair value (DCF) is B195 (from B191.5),
implying 23% upside and 16.7% ROE, which is among the top of Asia. Buy.