Partex

Maybank Kim Eng has made an analytic report on PTT Exploration and Production Public Company Limited (PTTEP) after the announcement of taking over the leading oil and gas company in the Middle East, Partex. Maybank sees the Partex's acquisition to provide a gateway to more investment in the Middle East in the medium to long term, given its key competitive advantage from low production cost. The strength of Partex project is that it can generate cash flow immediately and sufficient for investing in the current projects. Thus, Maybank maintains its BUY recommendation, giving a target price for PTTEP at ฿150.0/share (+18% upside). Partex is a well-established oil and gas company with a long presence in the Middle East for over 80 years. The current shareholder is a charity organization wishing to divest petroleum assets. Patex holds 7 projects (Figure 1 and 2), mostly in Oman and UAE as non-operating positions with world-class operators. In addition, Partex also runs Midstream projects, namely LNG in Oman and gas separation plants in the UAE. Patex's assets own a reserve of petroleum (2P) of 65 million barrels of crude oil equivalent (MMBOE), representing 5% of PTTEP's petroleum reserves. All of Patex's petroleum reserves are liquid. Therefore, PTTEP's reserve volume structure will increase liquid portion to 30% from 27%. The company should begin recognizing Partex's sales volume of 16,000 BOED in FY2020, representing a 4.3% upside to the sales volume target. Maybank estimates EBITDA to increase by an average of USD170 million per annum or 4.5% of the estimate and will generate an additional value of ฿1.00/share on the assumption Dubai oil price of USD65/bbl in FY2020 and USD70/bbl for long-term, with WACC 10.3%. The purchase price is USD622m, equivalent to EV/2P Reserve of USD9.6 per boe. Even though it is higher than PTTEP's purchase of Murphy at USD7.8 per boe, it is still lower than the average project purchase in SEA since 2H14 to present at USD11 per boe. Moreover, it also acquired the Liquefaction LNG plant, the production capacity of 10.4 MTA, and the 1.2 bcfd gas separation plant. The source of funds would come from cash flow from operations. However, Maybank also warns investors of risks that could affect the share price as follows: 1) Oil prices are lower than expected. 2) Controlling of OPEX and CAPEX in accordance with plan. 3) FX related impacts, causing many extra items.