PTT Exploration & Production

Above estimate 

PTTEP unveiled a 3Q14 NPAT of Bt15,284m, down 16% QoQ and 14% YoY. The result exceeded our expectation by 22% and the street by 18%, due to higher petro sales and gains on oil hedging contracts; and lower OPEX than we had assumed. 

Results highlights

The positive highlights of 3Q14 were rising petro sales and falling OPEX. Despite a heavy shutdown schedule for the quarter, petroleum sales inched up 3% QoQ to 325k boe/d, as the Zawtika project started operating in August with a mean volume of 200mmcfd. OPEX declined notably to US$5.9/boe from US$7.2/boe in 2Q14, due largely to a month-long shutdown at Montara and lower maintenance expenses. The firm also booked huge gains on oil hedging contracts totaling Bt2.3bn; we had assumed only Bt1bn.  

On the flipside, the oil price fall dented ASP by 4% QoQ to US$65.15/boe. A stable gas price supported ASP—the price of gas averaged US$8.13/mmbtu, flat QoQ, backed by the start-up of the Zawtika project, whose gas price was about US$9/mmbtu. The arrival of Zawtika in turn boosted DD&A to US$22.26/boe from 2Q14’s US$21.50/boe, but the number was as expected. Management guides that DD&A will remain at about that level going forward. 

Outlook

Despite the weak oil price environment, we remain optimistic over the 4Q14 outlook—we model for NPAT of Bt14,558m. The gas price will dip only slightly and write-offs will normalize—PTTEP guides for US$7.8-7.9/mmbtu and US$40m (versus 3Q14’s US$8.13/mmbtu and US$110m). Petroleum sales will rise to a record 330k boe/d on a full-quarter of Zawtika production and a lighter shutdown schedule. Lastly, lower oil prices mean that the firm will book bigger hedging gains—6.3m bbl of its liquid sales were hedged at a price of $95/bbl. Based on the current oil price, we calculate a gain of Bt2bn to be booked in 4Q14. 

What’s changed? 

We maintain our FY14 NPAT forecast of Bt57,398m unchanged. The variables in our model are biased toward upside rather than downside, as we conservatively assume a Brent price of only US$83/bbl versus a current price of $86/bbl. 

Recommendation

While the diminished oil price outlook intensifies FY15 earnings volatility, we see only modest downside risk. The price of gas is much more stable than crude prices, supporting against a dive in ASP. If an oil of US$85/bbl prevails through 2015, the gas price would be about $7.3-7.4/mmbtu and our FY15 forecast would slip by 10%. That would translate into a bear-case PER of 9.5x, just below the long-term mean.