PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Above estimate: PTTEP posted a 4Q11 net profit of Bt15,150m, up by a marked 103% QoQ and 50% YoY. The result was 14% higher than our estimate and 10% above the Bloomberg consensus, due to lower-than-expected write offs on exploration expenses and, most importantly, a reversal of OPEX for the M-9 project after its recent sale of a 20% stake in M-9 to Myanmar Oil & Gas Enterprise—PTTEP booked a US$35m write-back.
Results highlights: Core earnings came to Bt12,855m, close to the 3Q11 number. While average petroleum sales slipped 5.3% QoQ to 250,848boe/d, as expected, a surge in price realization offset the effect of the decline. ASP rose to a record high of US$61.26/boe from $55.37/boe the previous quarter, on a significant rise in gas prices at scheduled price adjustment reviews for its Bongkot, Pailin and Arthit fields in Oct—the average gas price jumped to US$6.64/mmbtu from 3Q11’s US$5.91/mmbtu. Moreover, exploration expenses declined to only $1.17/boe from $2.09/boe in 3Q11—PTTEP explained that it capitalized some write-off expenses totaling US$27m.   
Outlook: Although the absence of extra gains (i.e. FX and OPEX reversal) will mean a softer QoQ bottom-line in 1Q12, we remain optimistic about the firm’s core earnings outlook. As the flooding receded, petro sales picked up modestly, despite seven-day maintenance shutdowns at the Yadana and Yetagun fields and the expiry of the Arthit North field’s floating gas production contract in Nov. The average gas price should strengthen further on re-pricing at Arthit gas, which was effective at the start of this year in return for a cut to the minimum offtake agreement with PTT to 220mmcfd from 330mmcfd.
The risk of write-offs is also low, as the drilling results of major exploration wells will be completed by 2Q12 at the earliest. While the Canadian Oil Sands project has entered a “Winter Evaluation Program”, anectodal evidence suggests that the impact of write offs (if there are any) won’t be substantial—PTTEP wrote off only US$17m in 1Q11.
What’s changed? We maintain our FY12 profit projection of Bt47,628m (EPS: Bt14.35) unchanged. The risks to our model are: 1) oil price fluctuations, 2) an FX loss as a result of Canadian dollar depreciation against the greenback, 3) lower petroleum sales and 4) increased exploration write-offs.   
Recommendation: Despite PTTEP’s buoyant long-term production outlook, our HOLD rating stands. Despite ongoing geopolitical tensions, we believe oil price dynamics are currently skewed toward downside, given increasing supply from Libya and the global economic slowdown. Furthermore, the stock’s valuation is not a bargain—a one-year forward PER of 12.3x with only modest earnings growth of 6.4% YoY forecast for FY12. Within Thai Energy space, we still prefer PTT and BANPU.