Singapore, March 25, 2019 -- Moody's Investors Service has affirmed PTT Exploration and Production
Public Co. Ltd.'s (PTTEP) Baa1 issuer rating and the
Baa3 rating on its subordinated perpetual capital securities.
At the same time, Moody's has also affirmed the Baa1 rating
on the senior unsecured notes issued by PTTEP Canada International Finance
Limited and the Baa3 rating on the subordinated perpetual capital securities
issued by PTTEP Treasury Center Company Limited. Both the senior
unsecured notes and subordinated perpetual capital securities are fully
and unconditionally guaranteed by PTTEP.
PTTEP Canada International Finance Limited and PTTEP Treasury Center Company
Limited are wholly-owned subsidiaries of PTTEP.
The outlook on all ratings remain stable.
RATINGS RATIONALE
On 21 March 2019, PTTEP announced that it will purchase a portfolio
of Malaysian oil and gas assets from Murphy Oil Corporation (Ba2 stable)
for $2.127 billion. The portfolio comprises working
interest in five hydrocarbon blocks in Sabah and Sarawak, two of
which are in the production phase. The acquisition, which
remains subject to customary consents and regulatory approvals,
will be funded with PTTEP's cash-on-hand.
"The ratings affirmation reflects PTTEP's solid credit metrics,
supported by healthy operating cash flows and low debt levels, a
strong liquidity buffer -- even after it utilizes over $2
billion of cash to fund the proposed acquisition -- and
its expected improvement in its post-acquisition operating profile,
resulting from an enhanced scale of production and reserves,"
says Rachel Chua, a Moody's Assistant Vice President and Analyst.
Moody's expects PTTEP's retained cash flow-to-adjusted
debt will be around 90% over the next 12-18 months,
which is strong relative to the tolerance level of 30% for its
Baa1 ratings.
"The proposed acquisition is credit positive as it will partly address
PTTEP's low hydrocarbon reserves which have gradually declined over
the past few years. We estimate its post-acquisition proved
reserve life will lengthen to 6 years from 5 years," adds
Chua, who is also Moody's lead analyst for PTTEP.
Moody's estimates the proposed acquisition will add 129 million
barrels of oil equivalent (mmboe) of 1P reserves and 274 mmboe of 2P reserves
to PTTEP, which is equivalent to around 19% and 27%
of its 1P and 2P reserves at the end of 2018 respectively. Net
sales volume from the Malaysian assets was 48 thousand barrels of oil
equivalent per day (kboepd) in 2018. In comparison, PTTEP's
sales volume in 2018 was 306 kboepd.
PTTEP was in a net cash position at 31 December 2018, with cash
and short-term investments of $4.0 billion,
compared to $1.9 billion of reported debt, of which
$407 million will come due over the next 12 months.
PTTEP's Baa1 issuer rating reflects its strong financial metrics,
prudent financial policies and the high cash flow visibility from its
long-term gas sales contracts and low cost of production.
At the same time, the rating remains constrained by its modest albeit
improving reserve life, moderate production scale compared to global
peers, and exposure to oil price cyclicality.
The rating also incorporates a one-notch uplift, which reflects
Moody's expectations that its parent, PTT Public Company Limited
(PTT, Baa1 stable), will provide financial support in a distressed
situation. As PTT's upstream arm, PTTEP is strategically
important within PTT's energy value chain. There is also
a close business integration between the companies as more than 80%
of PTTEP's oil and gas sales volume are purchased by PTT.
The rating outlook is stable, reflecting Moody's expectation
that PTTEP will continue to generate stable operating cash flows from
its assets and maintain a prudent approach towards investments even as
it pursues growth.
Given that PTTEP's Baa1 rating is at the same level as that of its
parent PTT, a rating upgrade is unlikely.
Nonetheless, positive rating momentum on PTTEPs standalone credit
strength may emerge if the company (1) develops its oil and gas fields
or acquires producing assets, leading to meaningful additions to
its reserves and production volume, thereby further lengthening
its reserve life; (2) improve geographical diversification;
(3) generates positive free cash flow despite high investment spending;
and (4) maintains its strong credit metrics, such that debt/proved
developed reserves falls below $6 per barrel of oil equivalent
(boe) and retained cash flow (RCF)/debt remains above 40%-45%,
on a sustained basis.
In addition, the ratings of PTTEP and PTT will be reviewed concurrently
in the event of rating pressure, given the close links between the
two companies.
PTTEPs final ratings will be downgraded if Thailand's Baa1 sovereign
rating is downgraded or if PTTs issuer rating is downgraded.
Negative rating pressure will also develop if (1) PTTEPs earnings and
operating cash flows fall because of an unexpected protracted or steep
decline in oil prices; or (2) the company pursues a more aggressive
financial policy or makes large debt-funded acquisitions or shareholder
returns, resulting in weaker credit metrics.
Credit metrics indicative of downward pressure on the ratings include
RCF/debt below 25%-30%, debt/proved developed
reserves above $8 per boe or EBITDA/interest below 5x.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
PTTEP is an upstream company engaged in the exploration and production
of crude oil, condensate and natural gas. Established by
the Petroleum Authority of Thailand (now PTT Public Company Ltd) in 1985
as part of a national energy strategy, PTTEP is now a listed company
on the Thailand stock exchange, with PTT retaining a 65.3%
stake in the firm. While most of its projects are located in the
Gulf of Thailand, PTTEP is increasingly investing in overseas projects
in Southeast Asia, the Middle East and Africa.
In 2018, PTTEP had proved reserves of 677 million boe and reported
consolidated sales revenue of $5.3 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rachel Chua
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
