PTT Exploration and Production

Results highlights

Despite the disappointing bottom-line, PTTEP’s core profit was as expected at Bt16,624m, up by 41% QoQ and 30% YoY. Record petroleum sales comprised the key earnings driver for the quarter—the firm reported sales volume of 292,228boe/d versus 263,411boe/d for 2Q12. Furthermore, stable oil and gas prices meant that its petroleum price realization w as almost unchanged QoQ at US$64/boe ($64.17/bbl in 2Q12). In 3Q12, production and OPEX costs rose moderately. 

Depreciation expenses (DD&A) expanded US$13.84/boe from 2Q12’s $13.31/boe, due to a rise in completed assets and higher output volumes at Bongkot and the Vietnam 16-1 and S1 projects. OPEX rose modestly to $5.33/boe from $5.19/boe a quarter earlier on maintenance expenses for the Arthit project. On the balance sheet side, increased debt financing for the Cove purchase pushed up the net debt/equity ratio to 0.67x from 0.39x at end-June, somewhat above the firm’s policy ceiling of 0.5x. 

Outlook

As extra gains are unlikely to recur QoQ, solid 3Q12 earnings will be followed by a dip in 4Q12—we model for Bt13bn. While gas prices will rise at the scheduled Oct adjustment, anticipated softer oil prices are likely to weigh on PTTEP’s price realization. Also, planned shutdowns of the Bongkot, Yadana and Yetagun fields will cut output during the quarter. 

What’s changed? 

Despite the 3Q12 bottom-line disappointment, we maintain our FY12 profit forecast unchanged at Bt56,826m. The variables in our model are: 1) oil price volatility, 2) FX gains or losses on British pound- and Canadian dollar-denominated debts and 3) fluctuation of the greenback.    

Recommendation

While the scope for near-term stock price upside is limited by PTTEP’s impending recapitalization, our BUY rating stands. The firm offers the best bet within Thai Energy space over a one-year investment horizon. The risk-reward trade-off has improved. Given the combined RO-PP recapitalization scheme, concerns about the risk of price depreciation through the book-building process should have eased. The stock also trades at a historically low valuation—a fully-diluted YE13 PBV of 1.7x, down 1.5SD.