Singapore, June 04, 2020 -- Moody's Investors Service has assigned a Baa1 senior unsecured rating
to the proposed USD notes to be issued by PTTEP Treasury Center Company
Limited (PTTEP TC), a wholly-owned subsidiary of PTT Exploration
& Production Public Co. Ltd. (PTTEP, Baa1 stable).
These notes will be unconditionally and irrevocably guaranteed by PTTEP
on an unsubordinated basis. The guarantee will rank pari passu
to the unsecured and unsubordinated obligations of PTTEP.
The notes will be issued under PTTEP TC's and PTTEP's global
medium-term note (GMTN) program, which is rated at (P)Baa1.
The rating outlook is stable.
RATINGS RATIONALE
"PTTEP's Baa1 senior unsecured rating reflects our expectation
that its credit metrics and liquidity will remain strong despite the subdued
oil price environment," says Jacintha Poh, a Moody's
Vice President and Senior Credit Officer.
In 2020, Moody's expects the downward pressure on PTTEP's earnings
due to lower oil prices will be partially mitigated by: (1) its
price hedges for approximately 13 million barrels of crude at a price
floor of $55 per barrel, and (2) the pricing mechanism of
its gas sales agreements with its parent, PTT Public Company Limited
(PTT, Baa1 stable), which are not linked to spot oil prices
and hence provide a buffer against volatile price movements.
Over the next 12-18 months, Moody's expects PTTEP's
adjusted RCF/debt will be around 40%-45% and adjusted
EBITDA/interest between 9x-9.5x. Moody's projections
incorporate our oil price assumptions of Brent averaging $35 per
barrel in 2020 and $45 per barrel in 2021. PTTEP is also
entering the market downturn with a significant cash balance of about
$3 billion as at 31 March 2020.
"The Baa1 rating also takes into account PTTEP's track record
of prudent financial management," adds Jacintha Poh,
who is also Moody's Lead Analyst for PTTEP.
Moody's expects PTTEP will have the financial flexibility to adjust
its spending over the next 12-18 months if oil prices remain low
for a prolonged period. In April 2020, PTTEP already announced
that it will reduce its investment budget for 2020 by 15%-20%.
PTTEP's Baa1 ratings incorporate a one-notch uplift, reflecting
Moody's expectation that its parent PTT, will provide financial
support to PTTEP in times of need. As PTT's upstream arm,
PTTEP is strategically important to PTT's energy value chain. There
is also a close business integration between the companies, because
about 80% of PTTEP's oil and gas sales volumes are purchased by
PTT.
Moody's has also considered the following environmental, social
and governance (ESG) factors in its assessment.
First, as an upstream oil and gas producer, PTTEP has material
exposure to carbon transition risk. The global efforts to transition
to low-carbon energy will gradually lower demand for petroleum
products in the coming decades. Furthermore, Thailand's aging
population will constrain the growth in domestic consumption of petroleum
products over the next decade.
These risks for PTTEP are partly mitigated by Thailand's significant dependence
on imports of oil and gas, and the company's production mix,
which constitutes of over 70% of natural gas.
Second, PTTEP is exposed to contingent liability arising from legal
claims from a number of Indonesian seaweed farmers following the oil spill
in 2009 at the Montara oil rig operated by PTTEP Australia, which
demonstrates the implications of operational accidents that upstream producers
could be exposed to. Nonetheless, Moody's does not expect
the magnitude of these legal claims to materially harm PTTEP's credit
profile.
Third, PTTEP's has close links with its largest shareholder PTT,
which provides significant oversight on the company's financial policy
and business strategy. However, such linkage has been supportive
of PTTEP's credit profile in the form of long term offtake agreements
and other means.
PTTEP's ratings outlook is stable, reflecting the stable outlook
on PTT's ratings and Moody's expectation that PTTEP will continue to generate
stable operating cash flow from its assets and maintain a prudent approach
towards investments, even as it pursues growth.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's will only upgrade PTTEP's Baa1 issuer rating if PTT's Baa1 issuer
rating is upgraded.
PTTEP's standalone credit profile could improve on stabilization of oil
prices at a higher level, 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) improves its geographic diversification;
(3) generates positive free cash flow, despite high levels of investment
spending; and (4) maintains its strong credit metrics, such
that its 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.
Moody's would downgrade PTTEP's issuer rating if Thailand's Baa1 sovereign
issuer rating or PTT's issuer rating is downgraded.
Downward pressure on PTTEP's ratings will also develop if (1) oil prices
remain low for a prolonged period such that there is a significant decline
in PTTEP's earnings and operating cash flow; 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 PTTEP's ratings include
PTTEP's RCF/debt below 25%-30%, debt/proved
developed reserves above $8 per boe, or EBITDA/interest below
5x.
The principal methodology used in this rating was Independent Exploration
and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
PTT Exploration & Production Public Co. Ltd. (PTTEP)
is an upstream company engaged in the exploration and production of crude
oil, condensate and natural gas. In 2019, PTTEP had
proved reserves of 1.1 billion boe and reported consolidated sales
revenue of $6.2 billion.
Established by the Petroleum Authority of Thailand — now PTT Public
Company Limited — in 1985 as part of a national energy strategy,
PTTEP is now listed on the Thailand Stock Exchange, with its parent
company, PTT Public Company Limited, retaining a 64.79%
stake in the firm.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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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
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Jacintha Poh
VP - Senior Credit Officer
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
Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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