PTT

Moody's: PTT's full-year results for 2012 within expectations

PTT Plc’s 2012 financial results are in line with Moody’s Investors Service’s expectations, and the company’s issuer and bond ratings remain well positioned at "Baa1" with a stable outlook.

PTT’s consolidated operating performance for FY2012 improved with revenue and EBITDA growing 15.1 per cent and 7.8 per cent respectively from the previous

year, as high oil prices bolstered the performance of its upstream

subsidiary, PTT Exploration and Production (PTTEP)," says Simon Wong, a

Vice President and Senior Analyst at Moody’s.

PTTEP reported revenue growth of 25.3 per cent to THB212.5 billion in FY2012,

boosted by a 16.9 per cent increase in average selling prices (ASP) to $64.9 per

barrel of oil equivalent per day (BOED). Sales volume also rose

marginally by 4.1 per cent to 275,923BOED from the previous year due to higher

crude production from the new wells at its Bongkot South, Vietnam 16-1

and S1 projects. Production declines at other assets partly offset the

rises.

As PTT’s key earnings contributor, PTTEP generated 67 per cent of PTT’s total consolidated EBITDA and recorded an EBITDA margin of 70 per cent, up from 69 per cent in

FY2011. Moody’s notes that while PTTEP had announced in early 2013 an ambitious $15 billion investment plan for the next 5 years, there is sufficient

rating headroom to accommodate the higher capex program. The company’s

successful $3 billion rights issuance in late 2012 for financing the

acquisition of Cove Energy PLC had reduced its reliance on debt to fund

organic and inorganic growth.

"Looking forward, we expect PTTEP to remain the key growth engine in the

PTT group, but we will also continue to monitor its capex and any further

acquisition plans above the $15 billion investment plan, which would

weaken the company’s credit metrics," says Wong, who is also Lead Analyst

for PTT and PTTEP.

Moody’s changed PTTEP’s outlook to negative from stable on 25 May 2012

after it announced a binding offer to acquire Cove’s entire share capital

for GBP1.221 billion ($1.91 billion).

Moody’s would consider revising PTTEP’s outlook to stable if PTTEP’s (1)

total debt to proved developed reserves remains consistently below 8x,

(2) retained cash flow to total debt stays above 50 per cent, and (3)

debt-to-average daily production remains below $19,000 on a sustained

basis.

With PTT’s other business segments, the natural gas business was a drag

on the group’s operating performance, reporting a 16.0 per cent decrease in

EBITDA from the previous year. This result was due to higher feed costs

and consequently lower margins for products from its gas separation

plants.

PTT also reported a lower share of net income from its associates, which

declined 8.1 per cent to THB27.1 billion due to weak refining margins.

Its refining associates’ gross refining margin (GRM), including stock

gain/loss and hedging gain/loss, decreased 27.3 per cent to $4.43 per barrel

during 2012. The petrochemicals business saw higher olefins sales volume,

due to increased gas feedstock supplies from PTT’s gas separation plant,

but it also reported a lower aromatics crack spread because of the

decline in paraxylene demand at PTA plants.

"PTT’s refining business associates will stay under pressure in 2013 as

we expect refining margins to remain depressed due to slower global

growth in product demand amidst increasing global refining capacity,"

adds Wong.

In addition to PTTEP’s capex plans, PTT has an investment plan of THB366

billion for 2013-2017. It will remain focused on investments in joint

ventures, wholly-owned overseas ventures, and natural gas. On a

consolidated basis, Moody’s expects free cash flow to fall into negative

territory in 2013 before recovering in 2014.

Moody’s notes that Vichet Kasemthongsri, a former deputy transport

minister, has been appointed as the new chairman of PTT in February

2013. We will closely monitor the impact of what appears to be greater

government involvement in PTT group and the possible implication for its

strategic direction, operational and financial policies going forward.

PTT’s liquidity position remains strong. At end-2012, it had consolidated

cash and cash equivalents of THB136.9 billion, compared to debt maturing

within 12 months of THB57.7 billion.

Despite PTTEP’s negative outlook, PTT’s outlook remains stable given the

likelihood of strong support from the Thai government (Baa1 stable) and

the relatively stable cash flow from its natural monopoly of gas

transmission and distribution business.

PTTEP is engaged in the exploration and production of crude oil,

condensate and natural gas. Established by the Petroleum Authority of

Thailand (now PTT) in 1985 as part of a national energy strategy, it is

now a listed company, with PTT retaining a 65.29 per cent stake.

PTT is a fully integrated oil, gas and petrochemicals company in Thailand

and is 51.11 per cent directly owned by Thailand’s Ministry of Finance with a

further 15.26 per cent is held by Vayupak Mutual (government-invested funds).