PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP) 

 

Profit will return in 1Q15F after the huge loss last quarter, hit by asset impairment after the oil price crash. We expect the continuation of low oil price to bite into recurring profit in 1Q15 and throughout the year: we assume a 23% YoY fall in its average selling price. At the same time, we believe the market has largely priced this in, as its share has underperformed other companies in its sector. Last close still offers 14% upside to our TP of Bt130/share. We stay put on our BUY rating.       

Earnings turnaround expected (released Apr 30) in 1Q15 to net profit of Bt5.9bn after a huge loss of Bt24.4bn in 4Q14, without the enormous asset impairment caused by the plunge in oil price in that quarter. In addition, we expect exploration expenses to be slashed QoQ by its greater caution on investment when oil prices are low. We expect recurring profit to fall both QoQ and YoY as the lower oil price has hurt the selling price of its liquid products.    

Sales volume down QoQ. The company says sales volume in 1Q15F slid by a6% QoQ due to the planned shutdown of gas fields under Contract 4, including Pailin, and lower shipments of oil product from Montara. We estimate sales volume fell to 326.5kBOED in 1Q15F, falling short of its 2015 target sales volume of 343kBOED.  

ASP hurt by lower oil price. The fall in oil prices will bring an estimated fall of 13.1% QoQ and 24.3% YoY in average selling price (ASP) to US$49.12/bbl. This affects ~30% of its 1Q15F sales volume of crude oil and condensate. Fortunately, selling price of its gas portion (~70% of total volume) was stable QoQ at US$8/mmbtu. As a general rule, more stable gas prices support ASP when oil prices are weakening. PTTEP also hedges its liquid volume to protect the bottom line from weaker oil price than expected.  

Higher sales volume to support 2Q15F earnings. As the gas fields under Contract-4 are already back to normal operations, we expect PTTEP’s sales volume to improve QoQ in 2Q15F and make its target sales volume target for the year. This will be aided by more oil shipments from Montara, which will generate more cash than profit because of the high non-cash expenses. However, ASP will remain the key drag on earnings since the price of gas from Bongkot field will be adjusted in April to incorporate the lower oil price for the prior six months. We estimate PTTEP’s ASP will decline to US$46±/BOE in 2Q15F based on the current oil price.   

Earnings forecast maintained. Despite the expected low 1Q15F profit, we maintain our forecast for 2015F of a decline of core profit of 42% YoY and a rise in reported net profit of 34% YoY. This is possible, in our view, if oil prices drop no further than they are now. Volatility of oil price hinges largely on how fast production at non-OPEC countries will be reduced in this weak oil price environment plus geopolitics in the Middle East and North Africa. The lifting of sanctions on Iran could be negative to oil price if it can instantly put out more oil - which is doubtful.