PTT Exploration & Production

PTT Exploration & Production Plc (KKP)

Above estimates
PTTEP posted a solid profit of Bt17,805m for 3Q13, up by 67% QoQ and 2% YoY. The result beat our expectation and the consensus by 12%, due largely to lower-than-anticipated expenses, particularly DD&A and effective income tax rate.
Results highlights
The defining feature of 3Q13 was good control of expenses. DD&A expenses rose less than we had modeled—PTTEP reported US$15.55/bbl, up only slightly from $14.15/bbl. Management said these costs will rise when Montara production achieved a full production rate of 30KBD (it currently produces 10KBD). The effective income tax rate dived to 33% from the exceptionally high level of 60% posted for 2Q13. Lower petroleum tax as a result of lower sales volume, lower deferred tax as a result of QoQ baht appreciation and the exercising of a bigger tax-credit on Myanmar projects were largely responsible for the dive.
Nonetheless, third-quarter petroleum sales missed expectations—they averaged only 286,578boe/d versus 292,721boe/d in 2Q13. Maintenance shutdowns at Vietnam 16-1, Bongkot and the B8/32 projects squeezed volume more than we had envisaged. Meanwhile, price realization rose slightly to US$65.71/boe from $65.16/boe the previous quarter, as expected.  
Outlook
We are positive about the 4Q13 outlook for ASP and sales volume. Despite ongoing tie-in processes at projects in Vietnam, petro sales should rise to 297KBD for the quarter on an output ramp-up at Montara and fewer maintenance shutdowns. Based on Morgan Stanley’s crude forecast of US$105/bbl and the October rise in the mean gas price to $8/mmbtu, we expect a 4Q13 profit of Bt17bn.   
What’s changed?
In order to fine-tune for the impressive 3Q13 results, we have revised up our FY13 NPAT forecast by 4% to Bt65,789m (up 14.8% YoY). The variables in our model are :1) oil price volatility, 2) exploration write-offs and 3) the Bt/US$ exchange rate.   
Recommendation
PTTEP remains our preference within Thai Energy space. It has the best earnings visibility in the sector—an uptrend through 2H13. The prospects for FY14 are good, backed by 15% YoY production growth. The likelihood of PTTEP winning some of Hess’s assets, particularly in Thailand, and a concrete gas offtake agreement for its 8.5% stake in the Mozambique field, would potentially catalyze the share price, in our view.