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PTTEP tipped to gain the most from Mozambique gas project

Moody's cites parent's support, gains from other oilfields

PTT Exploration and Production stands to gain the most among Asian exploration companies investing in a Mozambique LNG (liquefied natural gas) project, according to Moody's Investors Service.

"As the smallest upstream E&P company among the three [rated] with the least acquisition headroom, PTTEP will face greater pressure from further large debt-funded capital spending related to this project and potential cost overruns.

"Still, we expect strong cash flow from operations driven by the start-up of its other oilfields outside Mozambique.

That cash and continued strong support from its state-owned parent, PTT, will provide sufficient financial flexibility for the company to meet the additional investments required as the Mozambique project progresses," the rating agency said in a report, "Mozambique LNG Project Will Diversify Production, Reserves for E&P Companies".

Of five companies involved in the project, three were rated by the agency - Thailand's PTTEP, India's Oil and Natural Gas Corporation (ONGC) and China National Petroleum Corp (CNPC).

Moody's expects PTTEP's production to increase by 3-4 per cent from the current 313,000 barrels of oil equivalent per day when the project begins commercial operations.

ONGC will see less than a 1-per-cent increase because its production volumes are already large. In the fiscal year that ended on March 31, ONGC produced 1.18 billion BBOe/d. CNPC produced 4.57 billion BBOe/d last year.

The investment will diversify the long-term production and reserves of the firms.

"The Rovuma basin has a large amount of high-quality natural gas reserves, particularly in Areas 1 and 4, where dry clean gas with no significant impurities has been discovered.

"As a result, the associated production and processing costs are lower," Simon Wong, Moody's vice president and senior credit officer, said yesterday.

"The project will also benefit from its accessibility to both Atlantic and Pacific markets. Mozambique's proximity to India and key North Asian LNG buyers means delivery times will be shorter and transportation costs lower than projects in North America and Australia," he said.

The five Asian E&P companies have invested more than US$14 billion (Bt449 billion) over the past 12 months to acquire stakes in the offshore Rovuma basin in Mozambique.

In Areas 1 and 4 of the basin off Mozambique's east coast, project operators Anadarko Petroleum Corp and Eni expect that the two gas-liquefaction facilities will produce 10 million tonnes per year and begin exporting LNG in 2018, supplying about 5 per cent of LNG demand in Japan, South Korea and China.

From the investment, ONGC will see the biggest gain in geographic diversification, because just 12 per cent of its production came from outside India in the last fiscal year.

CNPC has the strongest credit profile among the three rated companies, with significant financial flexibility to manage cost overruns.

The project will face financial, regulatory and operating challenges. It is expected to begin exporting LNG in 2019-20. Greenfield LNG development projects heighten the business and financial risks for E&P companies owing to the large funding requirements and potential execution delays or cost overruns, which are increasingly common.

Additional risks in Mozambique include the remote location of the proposed LNG park, lack of supporting infrastructure and reliance on imports for most of the skilled labour, equipment and other resources.

Other resources-development projects in Mozambique or neighbouring countries could also be competing for skilled labour, equipment and other resources.

"We are also concerned with the political and regulatory stability in emerging countries.

"Mozambique's planned presidential and parliamentary elections in early 2014 could delay project approval if a new government imposes additional hurdles," Wong said.

Even if the ruling party remains in power, the government still has to manage other domestic priorities, such as reducing the country's high poverty level, which could result in changes to energy regulation and royalty and tax frameworks for energy exports, the report said.


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