PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Expect Q4 2011 core earnings of Bt11.5bn (-10% q-o-q) due to lower sales volume
Montara start-up delayed to Q3 2012 from Q2 2012, but impact is partially offset by gas price adjustment; FY11F/12F earnings cut by 4%/16%

Q4 2011 sales volume to drop 4% q-o-q to 255kbd. This was due to disruption of oil product deliveries at the onshore S-1 project (100%-owned) due to the flooding during Oct/Nov, and the expiry of Arthit North project in Nov-11. As such, we expect volume growth to be flat for 2011. We expect PTTEP to report Q4 2011 core earnings of Bt11.5bn, down 10% q-o-q (PTTEP reported FX loss of Bt5.5bn in Q3 2011). Key highligh for Q4 2011 earnings is higher average crude oil prices of US$106/bbl (US$102/bbl for Q3 2011) and higher average gas prices of US$6.5/mmbtu (US$5.9/mmbtu for Q3 2011). PTTEP repriced its gas at Bongkot, Arthit, Pailin and MTJDA to reflect the higher oil prices over the past six to twelve months (depending on project). We assume Bt1bn write-off expense for Q4 2011 (VS Bt3.6bn for 9M11)
Montara start-up delayed to Q3 2012. PTTEP has announced the Montara start-up will be delayed by one quarter due to additional time needed for production review and the cyclone season during Dec-Mar. This will reduce sales volume by c.3% to 298kbd in 2012. PTTEP has confirmed the start up of Bongkot South (44.4%-owned) in Q2 2012. Given the track record for delays in start-up for new projects, we see further downside to sales volumes if these 2 projects do not commence on time.
HOLD with Bt162 TP. We have revised down our oil price assumptions in 2012-2013 to US$100/bbl and US$105/bbl (from US$110/bbl for both years) and lowered sales volume estimates to reflect the delay for Montara. We have rolled over our DCF-based TP to FY12F (discount rate of 9%) to derive a new TP of Bt162. We have also introduced FY13F earnings.