PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)

Investment thesis
PTTEP announced this morning that itself and Pertamina had won joint bids for Hess’s assets in Indonesia. The deal was a positive surprise and will raise optimism for PTTEP to also win Hess’s Thai assets, in our view. The two fields in Indonesia are producing assets, so the firm can book 7% more reserves and recognize 2.3% more annual earnings. The acquisition boosts our DCF target price by Bt2.5/share.  
Acquiring Hess assets in Indonesia
PTTEP and Pertamina have jointly signed a 50:50 Share Purchase Agreement to buy Hess’s assets in Indonesia—a 75% stake in the Pangkah field and 23% in the Natuna Sea A field. The Natuna A transaction should be closed by year-end, Pangkah in 1Q14.
Background
Pangkah is located in the East Java Sea. Its current production is about 7,000bbl/d of oil and 33mmcfd of gas with 2P reserves of 110mboe. Natuna A is a gas field in the West Natuna Sea, near the sea border between Malaysia and Indonesia. It currently produces about 220mmcfd of gas and 2,350bbl/d of oil with 2P reserves of 209mboe.
Pricing and funding sources
PTTEP said the total transaction price for the buyout of Hess’s Indonesian assets is US$1.3bn, with its share being US$650m. Management said it would be financed with cash-on-hand, which currently totals $2.5bn. Based on our ballpark estimate on 1P reserves at the two projects, we estimate an acquisition price of about US$20/boe. In our view, the deal is fairly priced and in line with our earlier expectation.
Reserve and profit accretion
As the transaction for Natuna Sea A is expected to be finalized soon, PTTEP will be able to book reserves from the field by year-end (and for Pangkah next year). Based on our ballpark estimate of 1P reserves at the two fields, PTTEP’s 1P reserves will rise by 65mboe (up 7% from YE12). As both projects are producing assets, the firm’s petroleum sales will increase by 9,200boe/d (FY14 output will be boosted 3%), so profit is anticipated to expand by Bt1.6bn/year (a 2.3% boost to FY14 NPAT).
What’s next?
The Hess assets in Indonesia constitute a positive surprise, as chances are slim given intense competition. In our view, that will raise optimism for PTTEP to win the Thai assets (Pailin and Sinphuhorm), where PTTEP already has interests. Management guides that the results of the tenders will be announced by year-end. The bigger stakes in the two fields would add 15KBD to PTTEP’s petro sales (~5% of current production).