PTT Exploration Mulls Bond Sale to Fund Growth: Southeast Asia

PTT Exploration & Production Pcl may sell perpetual dollar bonds in the second half to help fund more than $20 billion of investments in oil and gas projects from Myanmar to East Africa over five years.

Thailand’s biggest publicly traded explorer has room to increase borrowing by as much as $1.5 billion before reaching its limit of having a maximum debt-to-equity ratio of 50 percent, Chief Executive Officer Tevin Vongvanich said yesterday in an interview. That would make it the first non-financial Thai company to sell perpetual bonds.

“We’ll have some healthy exploration budget because we’ll shift a little bit from major acquisitions to exploration,” Tevin said in his office in Bangkok. “We’ll be looking at increasing the exploration budget over the next few years.”

PTTEP raised about $3 billion in December in Thailand’s largest equity offering to finance its purchase of Cove Energy Plc, which gave it a stake in East African assets. The company plans to double production to 600,000 barrels of oil equivalent a day by 2020 with existing projects in Australia, East Africa, North America and Southeast Asia. Including acquisitions, it aims to boost total daily output to 900,000 barrels by 2020.

The bond sale may take place in the second half of this year to help repay some debt, Tevin said. “The size of perpetual bond will be considered from the level of the repayment we have to make this year.”

Asian companies have sold $1.2 billion of dollar-denominated perpetual debt in 2013, almost half the amount sold all of last year, according to data compiled by Bloomberg.

Development Focus

The Cove Energy acquisition temporarily boosted borrowings to 70 percent of equity, which was then reduced to 35 percent with proceeds from the rights offer, he said.

The explorer, which has 44 oil and gas projects worldwide, bought 40 percent of Stavanger, Norway-based Statoil ASA’s oil sands project in Canada for $2.28 billion in November 2010, the biggest acquisition by a Thai company.

PTTEP will now focus on developing its existing assets and any future acquisitions will be mid-sized assets such as shale gas and shale oil in the U.S. and Canada, he said.

The company has “healthy” cash flow and can generate earnings before interest, taxes, depreciation and amortization of about $5 billion a year, which is sufficient to fund the development of existing projects, Tevin said.

Net income may climb to a record 66.5 billion baht ($2.23 billion) this year from an estimated 58.9 billion baht in 2012, according to the average of 28 analyst estimates compiled by Bloomberg. PTTEP is scheduled to release a five-year investment budget on Jan. 21 and full-year earnings on Jan. 31.

Major Player

Last year’s Cove Energy acquisition for 1.2 billion pounds ($1.9 billion) made the company a partner in Rovuma Offshore Area 1 and other petroleum blocks in Mozambique and Kenya. Anadarko Petroleum Corp. owns 36.5 percent in Rovuma, while PTTEP’s unit owns an 8.5 percent stake in the block that contains between 35 trillion and 65 trillion cubic feet of recoverable natural gas, according to PTTEP’s website.

Rovuma is expected to start producing liquefied natural gas as early as 2018 and have an annual output of 10 million tons, part of which will probably be shipped to Thailand, Tevin said.

“East Africa will be a major player in the next 10 years for the LNG business,” Tevin said. “To get the foothold in the initial development of this new region is very exciting for us.”

Energy Importer

Thailand, a net energy importer, is seeking overseas resources to meet growing energy demand at home. Thailand consumes daily almost 2 million barrels of oil equivalent of primary energy including oil, gas and coal, of which more than half is imported. Consumption is forecast to rise to 2.4 million barrels a day in 2020, PTTEP said, citing the energy ministry.

PTTEP’s production growth may climb about 20 percent in the three-year period until 2014, Tevin said. That will level out in 2015 and 2016, when the company will need to seek additional production from acquisitions, he said without providing figures.

The company aims to start oil production from its Montara project in Australia by the first quarter of this year and from its project in Algeria next year, he said. Natural gas production from the M9 offshore project in Myanmar will commence by the end of this year, Tevin said.

“The expansion plans will continue to drive PTTEP earnings to new highs every year over the next two-three years,” said Nalinrat Kittikumpolrat, an analyst at Asia Plus Securities Pcl in Bangkok. The broker recommends buying the stock with a fair value of 195.69 baht at the end of 2013.

PTTEP shares have lost 0.9 percent this year, compared with a 2.8 percent gain in the 67-member Bloomberg World Oil & Gas Index. The stock gained 0.6 percent to close at 162.50 baht in Bangkok yesterday. Thailand’s benchmark SET Index, which is up 2.1 percent this year, rose 0.3 percent yesterday.