Thailand: At home and abroad

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For Thailand’s Fortune 500-listed energy giant PTT, 2011 could be one of the busiest years since the firm was privatised in 2001. Its overseas expansion programme is progressing apace with 43 projects under way in 12 countries. At the same time, however, falling reserves in its own backyard and rising costs could have an impact on medium-term growth.

In recent years, PTT Exploration and Production (PTTEP), the company’s upstream arm, has diversified its operations, developing joint ventures with producers in neighbouring Indonesia and Malaysia and expanding even further afield in Algeria, Australia and, most recently, Canada.

Some of these operations have yet to fully meet expectations, however, with work being suspended at the Montara field in the Timor Sea, off the northern coast of Australia, after an oil spill in 2009. The Australian government gave the all clear for work to resume in early February, subject to an 18-month monitoring programme to ensure the company implements its upgraded safety and management action plan. Final work on the wellhead platform is now expected be completed by March and production is scheduled for the last quarter of 2011, with the flow of 30,000 to 40,000 barrels per day (bpd) set to bolster PTTEP’s global output.

The government’s permission to resume work at Montara is widely seen as giving the go ahead for further expansion in the region. The decision by Australian authorities not to further sanction PTTEP was positive for the future of the company, according to Kitticharn Sirisukarcha, an analyst from Kim Eng Securities, a Thai investment firm.

“The ruling will completely ease the major concern of investors, as many feared the Montara oil spill could lead to the cancellation of the company’s permits in the region,” Kitticharn told the Bangkok Post on February 4.

Elsewhere in the world, PTTEP has invested $2.28bn for a 40% stake in an oil sands project in Canada. Production started in early February and initial results appear promising, with early output of 10,000 bpd, set to increase to 18,800 bpd in two years’ time.

These and other projects are set to boost output, while in its home fields PTT is hoping to see modest growth or at least current maintain production levels. According to Tevin Vongvanich, PTT’s chief financial officer, 2011 should see a 10% rise in output, with 275,000 bpd targeted.

“This increase in production will come from both new field development as well as enhanced recovery techniques to maintain the production plateau of our existing fields,” he told OBG in a recent interview.

While using enhanced extraction technology will extend the life of operational fields, the processes also add to operational costs, eating into profit margins. It is for this reason that PTTEP is stepping up its efforts to broaden the base of its operations, spreading risk and working to guarantee a steady flow of hydrocarbons.

In late January the company announced it was planning to spend $16.5bn over the next four years to increase production and lift sales. Soon after, PTTEP released a statement to the stock exchange saying it intended to issue up to $3.23bn worth of bonds to fund its expansion programme. The news came hard on the heels of a statement that PTT was looking to sell $700m of bonds on foreign markets, with the proceeds to be utilised as working capital.

Just as the group is expand its operational base, its ownership base too may be about to broaden. On January 26, Somchai Sujjapongse, director-general of the State Enterprise Policy Office, revealed that there were plans to sell off some of the Ministry of Finance’s stake in PTT. Somchai told journalists that the finance minister, Korn Chatikavanij, had issued instructions to reduce the ministry’s holdings in PTT and other enterprises where they exceeded levels mandated by law.

The ministry currently holds a direct 51.36% stake in PTT, with the state-controlled Vayupak fund controlling another 15.3%. As of yet, there has been no clear indication of how big a stake the ministry is looking to divest. If it aims only to meet its statutory obligations of 50% maximum ownership, the sale of the 1.36% of PTT’s total shares will make little difference to the balance of the group’s overall structure.

However, should the reduction take into account the overall state holding, a significant slice of the company’s shares could come onto the market, although it is unclear whether a public float is being considered or a sale to existing or new institutional investors.

If a large block of PTT shares does come onto the market, it is likely they will be quickly snapped up. Last year, PTTEP saw net profits jump by 88% to $1.4bn and there are signs that it may far exceed output forecasts for 2011. With plans to expand production to 900,000 bpd by 2020 by means of strategic acquisitions, the company has the potential to improve its Fortune ranking, as well as the fortune of its investors.

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