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Published on April 30, 2008

Oranan Paweewun

The Nation

Record high oil prices are giving a big boost to PTT Exploration and Production (PTTEP) and most securities analysts have maintained a "buy" recommendation for its stock.

According to a Securities Analysts Association consensus, 26 brokers have set a target price for PTTEP in a range of Bt164-Bt201.69 per share.

Brokers in the consensus estimated that PTTEP would chalk up a 2008 net profit of Bt35.97 billion to Bt42.76 billion or a rise of 26 to 50.25 per cent year on year, marking an historical high net profit for the company.

PTTEP has invested in 38 ex-

ploration and production projects and four investments in Thailand, Malaysia, Indonesia, Cambodia, Burma, Vietnam, Oman, Iran, Egypt, Algeria, Bahrain, Bangladesh, Australia and New Zealand.

Its first quarter earnings beat analysts' estimates, thanks to lower-than-expected losses from oil price hedging. The company in the first quarter of 2008 delivered a 31.5 per cent year-on-year and a 19 per cent quarter-on-quarter increase in its net profit to Bt8.91 billion.

The national exploration and production company's five-year capital and operating expenditure plan stands at Bt286.90 billion.

In 2008, PTTEP plans to increase its new wells from 51 to 61, 11 of which were drilled in the first three months of this year. Its proven petroleum reserves, as of December 31, 2007, were 196 million barrels of oil and condensate and around 4.84 billion cubic feet per day of natural gas, which is equal to 946 million BOED (barrels of oil equivalent per day) for a yearly increase of 2.5 per cent.

PTTEP's risk factors are volatility in oil prices and appreciation of the baht as all of its revenue is generated in terms of the US dollar. Trinity Securities said PTTEP's net profit will rise 1.8 per cent for every US$1 per barrel of oil price increase and drop 3.7 per cent for every Bt1 appreciation against the dollar.

Asia Plus Securities, which has set the highest target price for PTTEP's stock at Bt201.69, said that PTTEP will hit a quarterly fresh record high in the following quarters, thanks to a significant increase in petroleum prices.

Based on assumptions that Dubai crude oil average price target in 2008 is raised from $70 (Bt2,218) a barrel earlier estimated by the broker to $80 per barrel and that PTTEP's sales volume target of 223,334 BOED will be achievable, the broker forecast that PTTEP's net profit this year would surge 43 per cent year-on-year to Bt40.66 billion.

Given the delay in the Arthit project, PTTEP's sales volume in the first quarter of 182,000 BOED was lower than the year's target but rose 7 per cent on year. However, the Arthit project ramped up to the contract level of 330 million cubic feet per day (mmcf/d) in late April.

Sales prices in the quarter jumped 36 per cent year-on-year to $48.24 a barrel in line with rising global crude oil prices and a gas price revision last year.

Kim Eng Securities (Thailand) predicted PTTEP's second quarter earnings would grow further from the previous quarter due to petroleum sales volume which is expected to hit the 2008 target of 223,334 BOED after the Arthit project, of which 80 per cent is owned by PTTEP, produces gas at the contract volume of 330 mmcf/day in late April and the Vietnam 9-2 and Arthit North come on stream in the third quarter.

In addition, the ongoing high oil prices at a new high of $119.50 in late April are projected to help the company sales prices rise in the second quarter. As a result, the broker maintains its 2008 earnings projection for PTTEP at Bt35.97 billion (EPS Bt10.95), a surge of 26 per cent year-on-year.

KGI Securities (Thailand) maintains an "outperform" rating on PTTEP with a target price of Bt186 per share.

"We continue to have a positive stance on PTTEP's earnings in the second quarter, as we expect higher sales volume from the start up of the Arthit project on March 26 at 80 mmcf/d. Its production volume reached the daily contract quantity (DCQ) of 330 mmcf/d in late April. Escalating oil prices year-to-date will be another key factor to drive the second quarter to set a new record performance. Normalised profit in the first quarter of Bt8.6 billion accounts for 23.9 per cent of our full-year forecast. We thus maintain our 2008 earnings forecast of Bt36 billion," the broker said.

"Furthermore, we see the potential for a future upgrade due to the current oil price situation."

The broker predicted that PTTEP would book a Bt1.1 billion loss from oil price hedging as it has 2.33 million BOED of oil price hedging in 2008 at $78-84 per barrel.

Kiatnakin Securities said that PTTEP's robust earnings in this quarter would continue as oil prices in April stayed above $100 a barrel and the company will realise full earnings generated from the Arthit project, which reached the contract level of production in late April.

Relatively high oil prices and Vietnam 9-2 and the North Arthit projects coming on stream in the third quarter will be drivers for PTTEP's earnings in the second half this year, the broker said.

The broker estimated PTTEP's 2008 earnings will increase 40 per cent year-on-year to Bt39.81 billion. It maintains its "buy" recommendation for PTTEP's stock at Bt195 per share based on the discount cash flow method.