Fitch Ratings: Concession Wins to Lift PTT's Reserves and Output

Tuesday 18 December 2018 17:19
PTT Exploration and Production Public Company Limited's (PTTEP) successful bid for rights to the Erawan and Bongkot fields will boost the group's reserves and production profile, Fitch Ratings says.

PTTEP is the exploration and production arm of PTT Public Company Limited (BBB+/AAA(tha)/Stable). The auction results on 13 December 2018 have eliminated PTTEP's concession renewal risks associated with the Bongkot field. PTTEP's stake in the Bongkot field will increase to 100% from the current 66.67%, and that in the Erawan field will rise to 60% from the current 5% in contract 3 only (a part of Erawan field); PTTEP will become the operator of the Erawan field from 2022.

PTTEP's production from these two fields, once concessions are renewed from 2022, will increase to around 200,000 barrels of oil equivalent per day on average (boepd, on a full-year basis), based on gas production of 700 million square cubic feet per day (mmscfd) for Bongkot and 800mmscfd for Erawan, from the current levels of around 70,000boepd. This will drive sales volume growth in 2022-2023. However, the selling prices of gas from these two fields are likely to be lower than the current contract prices, despite adjustment for inflation and oil prices. The company expects to reduce operating costs, but the cost savings are unlikely to fully offset the lower selling prices, which could result in narrower EBITDA margins.

The key requirement for the project renewals is that the operator has to continue at least 700mmscfd of gas production from Bongkot and 800mmscfd from Erawan. PTTEP, as an existing operator in Bongkot field and an experienced gas field operator in the Gulf of Thailand, should be able to maintain the fields' output above the minimum production volume.

We expect PTT's reserve profile to improve following the concession renewal. At end-2017, the Erawan and Bongkot projects had proved reserves of about 77 million barrels of oil equivalent (mboe) and 243 mboe, respectively, according to Department of Mineral Fuels' annual report. The proved reserves are likely to increase, particularly in the Bongkot field, as PTTEP will continue to be an operator of the field and will continue to explore and develop the area, which can further improve its reserve life.

The Minister of Energy announced that PTTEP had won the bid for exploration and production rights of Erawan and Bongkot under production sharing contracts. The contracts are expected to be signed by end of 1Q19. The previous Bongkot and Erawan concessions were due to expire in 2022-2023.