Analysts Upgrade PTTEP to Outperform on Buying 20% in Oman’s Block 61, Raising TP to ฿125

PTT Exploration and Production Public Company Limited (PTTEP) announced a successful acquisition of 20% stake in Oman Block 61 worth 72 billion baht to venture into LNG value chain strategy. PTTEP believes this acquisition will bring a prompt increase in sales production and sustain long-term growth for the company, as well as provide the opportunity for PTTEP to expand investment in the Middle East.

 

Krungsri Securities was optimistic on this deal given the Oman government is 100% offtaker and hence, low operating risks. PTTEP looked at this asset three years ago when Petronas acquired 10% in 2018 from Oman’s Makarim Gas Development at US$9 EV/boe. Gas selling price is fixed (not linked to oil prices) at US$3-4/mmbtu and will be raised on an annual basis. This will increase PTTEP’s gas:liquid sales volume ratio to 73:27 from 67:33 in 2020 and PTTEP’s reserve life by one year to 11 years.

 

This acquisition fits with PTTEP’s strategy to focus on prolific areas in the Middle East. KS incorporated additional 25k boed sales volume of Block 61 into KS forecast in FY21F and 63k boed in FY22-25F. These increased KS earnings forecast by 8-11% in FY21-25F. 

 

Therefore KS upgraded a rating on PTTEP to Outperform and a target price to ฿125, pegged to 15.8x FY21F PE, slightly higher than our previous 14.7x. KS saw upside in PTTEP as PE multiple will drop to 9.3x in 2022F once Block 61 contributes full-year sales volume.

 

Also, KGI Securities has a positive view on the acquisition as this investment will fit well with PTTEP’s strategy to increase gas portfolio, upgrading a rating on PTTEP to Outperform, from Neutral, and raised a target price to ฿122.00, from ฿114.00, based on DCF methodology with WACC of 9.4% and terminal growth of 1.0% to reflect the earnings upgrades and the acquisition of a 20% stake in the Oman Block 61 project. 

 

KGI adjusted its earnings projections by 27% to 30.9 billion baht in 2021 mainly from higher gas selling price in the Gulf of Thailand. PTTEP’s gas sale price was revised up 6% to US$5.5/mmbtu in 2021, based on the latest guidance, as KGI previous assumption was too conservative. In addition, KGI added the acquisition of a 20% stake in the Oman Block 61 project into its model so revised up a sales volume by 6% to 398KBOED in 2021 and 12% to 486KBOED in 2022. 

 

KGI also reduced PTTEP’s unit costs by US$1.0/BOE to US$29.4/BOE this year and US$28.8/BOE next year since the Oman Block 61 project has low producing costs about US$1520/BOE. Therefore, adjusting up its earnings estimate by 7% to 34.2 billion baht in 2022 thanks to the latest acquisition.

 

However, KGI had some concerns about site access to the Erawan project to install equipment and facilities in mid-2021 due to possible postponement from delay in talks between Chevron and the Energy Ministry. This will significantly affect PTTEP’s sales volume in 2022 as the new PSC contract of the Erawan project will commence in April 2022.