Fitch: PTTEP#s Plan to Raise Bongkot Stake to Boost Reserves Still Weak

Stocks and Financial Services Press Releases Tuesday February 13, 2018 11:13
Bangkok--13 Feb--Fitch Ratings

PTT Exploration and Production Public Company Limited's (PTTEP) plans to acquire a 22.22% stake in the Bongkot concession in Thailand will boost its production over the next four years, Fitch Ratings says. PTTEP is the exploration and production arm of PTT Public Company Limited (BBB+/AAA(tha)/Stable), and the acquisition will raise its stake in the Bongkot concession to 66.67%.

The acquisition of the stake from subsidiaries of Royal Dutch Shell, when completed, will increase PTTEP's oil and gas sales volume by around 35,000 barrels of oil equivalent per day on average (boepd, on a full-year basis) from the current levels of about 300,000boepd. This will reverse the gradual decline in production expected by the company in 2018-2019. However, PTTEP continues to face renewal risks associated with this concession at the Bongkot gas field, which is due to expire in 2022-2023. The Thai government expects to open the bid for renewal by 1Q18. The bidding and conclusion of the renewal of this and other concessions have been delayed, from the last target of end-2017.

PTTEP's plan to increase its stake in Bongkot underscores its continued confidence in this field. As the existing operator of the field, PTTEP may have an advantage when the concession comes up for auction. However, should it be unsuccessful, the loss of this project will have a major impact on its operations.

In Fitch's view, a key credit negative for PTTEP remains its weak reserve profile compared with exploration and production companies rated in the 'BBB' category by Fitch. The proposed acquisition will not improve its reserve profile, especially in terms of proved reserve life. The Bongkot project has low proved reserve life at about four years as of end-2016. With the current concession expiry in 2022-2023, Fitch expects minimal development and exploration in the field, with activities largely to maintain production. PTTEP's low reserves also reflect that the majority of its assets are located in Thailand, where oil and gas reservoirs are scattered and of relatively small size.

Fitch expects the reserve profile of PTT's upstream operations to remain weak. Both its oil and gas proved reserves and proved and probable reserves continued to decline in 2017. PTTEP has significant contingent resources that can be migrated in due course with sufficient investments, but a substantial rise in proved reserves from organic sources is not likely in the next two years.

The acquisition of the Bongkot stake will cost about USD750 million excluding tax, which will not have material impact to PTTEP's financial profile. PTTEP currently has a net cash position. It had a cash and cash equivalents of USD4.5 billion at end-2017.

The completion of transaction is subject to the completion conditions in the agreement. PTTEP expects to complete the acquisition in 2Q18.

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