PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)
Above estimate
PTTEP reported a solid profit of Bt18,187m, up by 46% QoQ and 71%
YoY. The result exceeded our expectation by 23% and the street by
29%, due to several positive surprises—specifically a deferred tax
adjustment and a net gain on the KKD asset swap (which together
totaled ~US$100m). Stripping out the extra items, core profit would be
Bt15,072m, up by 20% QoQ and 21% YoY. The number was also 4%
above our estimate, due to higher petro sales and ASP and lower
OPEX than modeled.
Results highlights
The highlights of 2Q14 were the two positive surprises and lower
expenses—mainly OPEX. PTTEP overbooked deferred income tax by
US$60m in 1Q14, so reversed the provision in 2Q14. Net gain from the
KKD swap was surprisingly US$40m. OPEX fell sharply to US$7.2/boe
from 1Q14’s US$9.1/boe, largely due to the absence of KKD OPEX
because in 1Q14 PTTEP had $60m in extra expenses for a Montara
development well (H5).
Petro sales and ASP also edged up by 6% and 4%, respectively, to
315.8k boe/d and US$67.7/boe; we earlier assumed 311.1k boe/d and
US$66.3/boe. Apart from Hess assets, greater-than-expected output at
the Pailin field buoyed growth. The better ASP was also due to the
effect of much lower sales of cheap Vietnam gas.
Outlook
While 3Q14 NPAT should normalize, we believe strong core profit
number will prevail into the third-quarter. Bongkot’s return from a 14-
day shutdown during 2Q14 and full-quarter realization of income from
Hess assets will boost sales volume further in 3Q14. Gas prices will
stay at least flat QoQ, as the impact from cheap Vietnam gas sales (as
was the case in 4Q13-1Q14) will be only negligible. Recent baht
appreciation is also a net positive for the bottom-line.
What’s changed?
We maintain our FY14 NPAT forecast of Bt59,564m unchanged—1H14
profit represents 51% of our full-year projection. Exploration write-offs
on dry wells are likely to rise in 2H14. Two expensive exploration
projects—Sunbird in Kenya and Maple East in Australia—could be at
risk. The two fields’ exploration costs total US$120m versus U$30-40m
in 1H14, but we have incorporated the cost into our model.
Recommendation
We are confident that PTTEP’s share price will rise further. Despite
another delay to Zawtika’s start-up, forward profit should resume an
uptrend in 2H14 through FY15. PTTEP trades at an FY14 PER of 11.2x
(near its long-term mean) and a PBV of 1.7x (a historically low level).