Bangkok--26 Mar--TRIS Rating
TRIS Rating has affirmed the company rating of PTT Exploration and Production PLC (PTTEP) and the ratings of PTTEP’s senior unsecured debentures at “AAA”. TRIS Rating has also affirmed the rating of PTTEP’s subordinated capital debentures (hybrid) at “AA”. The outlook remains “stable”. The two notches below the corporate credit rating reflect the deferability and subordinated nature of the capital debentures. The ratings reflect the company’s leading position in the petroleum exploration and production (E&P) industry in Thailand, its solid asset base, the support it receives as the E&P arm of the national oil and gas company, and its very strong financial profile. Weaker petroleum prices and execution risk PTTEP face in its overseas operations remain rating concerns.
The “stable” outlook reflects TRIS Rating’s expectation that PTTEP will be able to maintain its strong financial position amid very challenging environment. The company’s flexibility to rationalize capital expenditures and its ample liquidity would help PTTEP weather the current downturn in the petroleum industry.
PTTEP’s credit downside may arise if the crude oil price stays below US$50 per bbl for a prolonged period, or PTTEP’s financial leverage increases significantly due to large scale debt-funded acquisitions.
PTTEP is the leading petroleum E&P company in Thailand. The company was established in 1985 to hold petroleum concession rights on behalf of the Thai government. As of February 2015, PTT PLC (PTT), the national oil and gas company, held a 65.3% stake in PTTEP. Both PTT and PTTEP are state enterprises. As the E&P arm of PTT and the Thai government, PTTEP can participate in petroleum projects with high potential, both in Thailand and abroad. As of February 2015, the company had 43 E&P projects across 11 countries. About half or 22 projects were in the production phase, while the remainders were in the exploration and development phases.
PTTEP’s business profile is very strong. At the end of 2014, PTTEP owned proved petroleum reserves of 777 million barrels of oil equivalent (mmboe), including the reserves from its overseas projects. This is an 8.2% decrease from the level of proved reserves in 2013. In 2014, PTTEP’s production volume increased by 9.1% to 359,259 barrels of oil equivalent per day (boed). The increase was due to the acquisition of Hess (Thailand), the start-up of the Zawtika project, and the full year operation of the Montara project. With the production rate achieved in 2014, PTTEP’s proved reserves will last about six years. If PTTEP finalizes its decision to develop the liquefied natural gas (LNG) project in Mozambique and oil sand project in Canada, the company expects to be able to add proved reserves in an amount equal to one to two years, based on production rate in 2014. PTTEP’s lifting cost increased from US$4.88 per barrel of oil equivalent (boe) in 2013 to US$5.26 per boe in 2014. The five-year average finding and development (F&D) cost rose to US$51.1 per boe in 2014, from US$33.5 per boe in 2013. Rising F&D cost due to acquisitions PTTEP made during the past five years added more contingent resources rather than proved reserves.
A sharp drop in crude oil prices in the second half of 2014 has no immediate impact on PTTEP’s financial profile. The company’s average selling price for 2014 dropped only 3.4% from US$65.58 per boe in 2013 to US$63.38 per boe in 2014, while the price of crude sank by 8.5% over the same period. This was because sales of gas accounted for 67% of PTTEP’s total sales volume and only 30%-50% of the gas pricing is indexed to fuel oil price, with the lag time of three months to one year.
In 2014, PTTEP’s total sales increased by 4.5% to US$7,496 million. The rise was mainly due to a 10% increase in sales volume from 292,629 boed in 2013 to 321,886 boed in 2014, while the average selling price dropped by 3.4%. Earnings before interest, tax, depreciation, and amortization (EBITDA) increased from US$5,369 million in 2013 to US$5,915 million in 2014. The company’s capital structure is healthy, with the ratio of total adjusted debt to capitalization of 29.2% at the end of 2014. PTTEP’s total adjusted debts were US$4,928 million at the end of 2014.
PTTEP plans capital expenditure of approximately US$15,864 million for its existing projects during 2015-2019. Approximately 60% of the total is earmarked for projects in Thailand, while 23% will be spent on projects in Southeast Asia, and 17% in other regions. In respond to current low oil price, PTTEP has
lowered its capital expenditure budget for 2015 by 13.8% from US$3,562 million to US$3,071 million. The company also has flexibility to delay some of the expenditures. PTTEP’s liquidity is very strong. At the end of 2014, PTTEP had cash on hand of US$3,936 million and unused credit facilities of approximately US$1,078 million, of which US$608 million was a committed credit line.
During 2015-2017, TRIS Rating’s base case expects the company’s EBITDA will decline to about US$3,500-US$3,700 million per year. This is based on average sales volume of approximately 340,000 boed, and the price of Dubai crude oil averaging US$60 per barrel (bbl). Capital expenditure plan during 2015-2017 will be approximately US$10,000 million. PTTEP has approximately US$1,664 million in debt repayments due from 2015 to 2017. Of the total, US$750 million will be due in 2015, no repayment due in 2016, and US$914 million will be due in 2017. Given the expected levels of EBITDA, capital expenditures, and debt repayments, the adjusted debts to capitalization ratio is expected to stay below 30% during 2015-2017.
PTT Exploration and Production PLC (PTTEP)
Company Rating: AAA
Issue Ratings:
PTEP183A: Bt2,500 million senior unsecured debentures due 2018 AAA
PTTEP195A: Bt5,000 million senior unsecured debentures due 2019 AAA
PTTEP196A: Bt8,200 million senior unsecured debentures due 2019 AAA
PTTEP296A: Bt11,400 million senior unsecured debentures due 2029 AAA
PTTEP12PA: Bt5,000 million subordinated capital debentures AA
Rating Outlook: Stable