PTT Exploration & Production

PTT Exploration & Production Plc (PTTEP)  

Missed expectation 

PTTEP unveiled a 4Q14 net loss of Bt24,415m, a reversal from a profit of Bt15,284m in 3Q14. The loss was 20% deeper than our estimate and the consensus, due mainly to heavier extra expenses than envisaged (though the reported impairment losses on Montara and Canadian tar sands was as expected). Net extra expenses totaled Bt31bn: we had assumed Bt27bn. Apart from that, E&P and SG&A expenses exceeded our expectations.

Results highlights

The negative highlights of 4Q14 were impairments for Montara and the Canadian tar sands projects totaling US$997m and heavy one-off adjustments (quite common in the fourth-quarter) impacting on expenses, G&A and OPEX. Reported G&A and OPEX jumped to US$4.26/boe and $5.99/boe from 3Q14’s $2.74/boe and $5.84/boe, respectively. Greater Montara production also boosted DD&A expenses to $24.40/boe from $22.27/boe in 3Q14.

Operationally, petro sales volume rose 7% QoQ to 347,295 boe/d. But ASP declined in tandem with the oil price slump—down 13% QoQ to US$56.54/boe, a 3-year low. As such, revenue slipped 6% QoQ. PTTEP also announced a 2H14 DPS of Bt1.50, making for a total of Bt4.50 for FY14. The number was in line with the street expectation, but translates into a miserly yield of 2.7% on annualized basis. 

Outlook

1Q15 NPAT should flip back into a profit, as no impairment losses will recur, while G&A and OPEX expenses will normalize and exploration write-offs are normally low in the first-quarter. We preliminarily estimate NPAT of ~Bt8bn. Despite weaker oil prices, gas prices (gas output comprises 67% of total) remains steady at US$8/mmbtu—the price adjustment schedules for its major fields are in April and October.  

What’s changed? 

Management guided in the conference call yesterday that the firm’s break-even cost will remain at US$44/boe due to high DD&A US$24/boe. This seemed to be negatively surprised as they earlier guided that DD&A might slip after the impairment loss of Montara. As such, we raised our DD&A assumption to US$24/boe (from US$19/boe) and slashed our FY15 projection by 30% to Bt29,279m. The variables in our model are biased toward downside, as we have pegged MS’s base-case 2015 Brent price forecast of US$70/bbl versus a current price of $48/bbl. For every $10/bbl that Brent falls short of our assumption our FY15 NPAT projection would be squeezed by Bt9.3bn.

Recommendation

The market has largely factored in weak 4Q14 earnings and anticipates that the 1Q15 outlook is better (given that no impairments will recur). We, however, think there is only limited scope for further share price appreciation. 1Q15 earnings will be the peak of the year. Gas prices at some of PTTEP’s fields will be cut in response to falling oil prices at the April adjustment schedule. There might also be further slippage to oil prices. So there is risk of a consensus earnings forecast cut.