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I AGREE
21 Feb 2011
Hong Kong, February 21, 2011 -- Moody's Investors Service has today downgraded the issuer and senior
unsecured bond ratings of PTT Exploration and Production Public Company
Limited (PTTEP) to Baa1 from A3.
The ratings outlook is stable. This concludes the rating review
that was initiated on November 25, 2010.
RATINGS RATIONALE
"The elevated credit risk at PTTEP, resulting from its acquisition
of a 40% interest in the Kai Kos Dehseh Oil Sands project (KKD
project) in Canada, spurs the downgrade of the company's standalone
rating to Baa2 from Baa1," says Renee Lam, a Moody's
Vice President & Senior Analyst.
"In the long term, the KKD project has a high potential for
production growth, and will also assist PTTEP to diversify its resources
base. However, the KKD project is subject to potential cost
overruns and delays. As the project is still at its ramp-up
stage, it would take more than five years to achieve meaningful
production levels, which is typical for an oil sands project,"
says Lam.
"Financial risk is increased by a significant and immediate rise
in leverage to fund this project," says Lam.
"Although notable growth in production and cash flow could be expected
in 2012 with the Montara project going on stream, the extent of
de-leverage would be moderate given the significant debt funding
for the KKD project," adds Lam.
"Debt for proved developed reserves would rise to over USD9/boe
in 2011 from about USD6/boe in 2010, and stay at around USD7.5/boe
over 2012-2013. Hence, these metrics are no longer
commensurate with the company's previous standalone Baa1 rating,"
says Lam.
PTTEP's capex is expected to be in the range of THB65-70
billion annually for 2011-2015, compared with an average
of THB50 billion annually from 2007 to 2009.
Moody's therefore projects the company's 3-year average
finding & development cost to rise substantially to over USD20/boe
in the next two years, from about USD13/boe in 2010.
Moody's is also concerned about the company's appetite for
acquisitions. It is unlikely that the ratings will accommodate
further acquisitions that are significantly debt-funded and not
cash flow accretive.
PTTEP's standalone Baa2 rating continues to factor in the operating
and financial stability offered by its long-term sales contracts,
as well as its strategic role as a gas supplier to Thailand's power
sector.
PTTEP's final Baa1 rating incorporates a one-notch uplift
based on Moody's assessment of the credit support that its parent,
PTT Public Company Limited ('PTT'), is likely to provide
in the event of distress.
Near-term upward rating pressure is limited given the substantial
development risk that PTTEP faces. Positive rating momentum could
emerge if PTTEP reduces its debt leverage because of organic growth,
asset divestment, or equity issuance.
An upgrade of PTT may trigger a review of PTTEP's rating.
Downward rating pressure would emerge if PTTEP further engages in debt-funded
acquisitions that raise its development risk. Cost overruns or
delays in project development would also be negative for the rating.
PTTEP's rating will be downgraded if its parent, PTT,
is downgraded.
The last rating action on PTTEP was taken on November 25, 2010 when
Moody's placed the company on review for possible downgrade.
The principal methodology used in rating PTTEP was Moody's "Global Independent
Exploration and Production (E&P) Industry," published in December
2008.
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 65.35% ownership.
REGULATORY DISCLOSURES
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parties involved in the ratings, public information, and confidential
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Please see ratings tab on the issuer/entity page on Moodys.com
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of each rating category and the definition of default and recovery.
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's downgrades PTTEP to Baa1; outlook stable
No Related Data.
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