Bangkok--26 Mar--Fitch Ratings
PTT Exploration and Production Public Company Limited's (PTTEP) plan to acquire Murphy Oil Corporation's (BB+/Stable) business in Malaysia will immediately increase the group's reserves and production profile, Fitch Ratings says. In our view, the acquisition plan and contract wins at the Erawan and Bongkot fields in Thailand should help reverse PTTEP's fall in proven reserves over the last eight years and improve its reserve life.
PTTEP is the exploration and production arm of PTT Public Company Limited (PTT, BBB+/AAA(tha)/Stable). We expect the PTT's financial profile to remain robust and comfortable for its current ratings despite our expectations of a modest increase in its leverage as a result of the proposed acquisition. We expect PTT's FFO adjusted net leverage to increase to about 1.2x in 2019 (end-2018: 0.7x). PTTEP's large cash balances of USD4.0 billion at end-2018 should be more than adequate to fund the USD2.1 billion acquisition cost. PTTEP's debt to EBITDA was only 0.6x end-2018.
PTTEP expects the acquisition to increase its sales volume by about 18% on a five-year average basis, from the expected pre-acquisition sales volume of 318,000 barrels of oil equivalent per day (boed) in 2019. The net sales volume of the Murphy assets was 48,000 boed in 2018.
PTTEP expects its proved and probable (2P) reserves to increase to 1,302 million barrels of oil (MMBOE), driving up its 2P post-acquisition reserve life to 8.8 years (end-2018: 7.8 years). This should help PTTEP to achieve its target to increase its proved (1P) reserve life to seven years from the current five years over the next two to three years. We expect PTTEP to continue its efforts to increase its reserve profile and support its production.
PTTEP has signed a share purchase agreement with Murphy to acquire 100% of Murphy's two subsidiaries in Malaysia for USD2.1 billion with a maximum USD100 million contingent payment upon certain future exploratory drilling results. These two companies hold five projects: two producing, one under development and two exploration projects. For the development project, the first production is expected in 2H20 and it will have full capacity of 270 million standard cubic feet per day (mmscfd) of natural gas. The net sales volume (to the company) is expected to be 130mmscfd. The production profile of the assets to be acquired will be increasingly weighted towards gas.