PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Bt13bn in 4Q12F despite slightly better operating profit driven by higher average selling
price (ASP). This arises out of a higher effective tax rate on a lower positive impact
from exchange rate and possible impairment for Montara. We expect flat sales volume
QoQ despite a maintenance shutdown of Bongkot, as this was partly offset by higher
production at some fields after their maintenance shutdowns in 3Q12 (MTJDA and
Pailin) and more production from Vietnam 16-1.
ASP could rise slightly after gas price adjustment in Oct. PTTEP’s ASP is expected
to edge up by 3% QoQ to US$65.8/BOE upon an upward adjustment of gas price from
its key operating fields in October, mainly MTJDA and Arthit, where prices are adjusted
only once a year. The average gas price was raised to more than US$8/mmbtu, up from
US$7.68/mmbtu in 3Q12. Selling price of liquid products (crude oil and condensate) is
expected to track Dubai crude oil price of ~US$106-107/bbl better after lagging in 3Q12
due to lag time in condensate price adjustment.
Small impact from non-recurring items. Unlike in 3Q12, non-recurring items
should have small impact in 4Q12F due to a stable exchange rate, hence lower impact
from deferred tax and FX gain/loss. PTTEP will also book US$30mn in insurance claim on
Montara’s oil spill in 4Q12F, similar to 3Q12. The balance of US$27mn may be booked in
1Q13 before the startup of the project.
Montara startup in late 1Q13 confirmed. Management continues to expect
Montara to start up in late 1Q13, as targeted, assuming favorable weather. It plans to
ramp up production to reach the maximum of 35kbd within 2-3 months after startup.
At the same time, the quarter’s delay means the average 2013 production volume
drops to 20,000-25,000bpd, vs. the former target of 35,000bpd. This was the key factor
for a downward adjustment in target sales volume for 2013F. The production period
for this project is also now extended to 2017 from 2016. In addition, nearly US$100mn
more impairment will be booked in 4Q12 compared with US$109mn in 2Q12.
PTTEP reviewing production target and investment. The company is reviewing its
five-year target sales volume and investment and plans to release this to the
investment community next week. The key adjustment is the sales volume for 2013 to
factor in the quarter’s delay in the startup of Montara. We believe the market has
already put this into earnings estimates.
BUY maintain with expected total return of 23%. PTTEP’s current valuation
remains cheap compared with its historical record and on par with regional average,
but we see a positive upside if oil price can maintain its long-term upward
momentum. We maintain our BUY rating, with the lifting of the capital increase
overhang leaves investors free to focus more on its LT value.