ANALYSIS Fire blackens PTTEP

ANALYSIS
Fire blackens PTTEP

By Siriporn Chanjindamanee,
Thanong Khanthong
The Nation
Published on November 4, 2009


Analysts bearish on firm and parent; project may be written off


PTT Exploration and Production has managed

to squelch the main fire at its Montara offshore

well in the Timor Sea and plugged the oil and gas leak,

but it may end up having to write off the entire

Bt20-billion project.


Avin Sony, an analyst at Asia Plus Securities,

is particularly bearish on PTTEP.


He wrote in a report on Monday called "Platform

Fire Burns Growth" that insurance might not

compensate for all of the damage from the fire

at the oil rig's platform.


"PTTEP has insurance coverage that allows for

US$75 million [Bt2.51 billion] for damage and

clean-up per occurrence, $50 million third-party

casualty and up to $143 million well-head plat- form

insurance if the plat-form is totally destroyed," he said.


"We believe the total cost for the incident, which is yet to

be ascertained, may exceed the insurance cover.


"Nonetheless, in the worst-case scenario, if PTTEP

is unable to control the oil spill for the next two months,

we believe it may have to write off the whole project.

Total write-off cost could mount up to $600 million to

$700 million [amounting to B6 per share]. This, in our view,

will remain a key overhang on the stock."


PTTEP's shares fell 5.11 per cent yesterday to close

at Bt130 on investors' concern over the company's

misfortune with its Australian subsidiary. Last month,

PTTEP hit a high of Bt164 with market capitalisation

reaching more than Bt400 billion.


PTT, the parent of PTTEP, also took a beating

yesterday. Its stock price fell 2.15 per cent to

Bt228, against a high of Bt277 last month.


Both stocks account for signi-ficant weighting of

the Stock Exchange of Thailand Index.


Brokers said foreign investors have been rushing

for the exit, dumping PTTEP by more than Bt10

billion so far. Yesterday, foreign selling continued

at Bt2.88 billion, reflecting fears PTTEP might

bleed money badly or be hit with environmental

lawsuits in its exploration in the Timor Sea.


"The problem is that PTTEP might not lose just

$600 million from its investment in the Australian

unit from the fire, which has blackened its credibility,

but it could lose more money if it had to take on

environmental lawsuits. Chevron faced lawsuits from

its oil spill amounting to $20 billion," an observer said.


A Bualuang Securities analyst said in the worst case,

PTTEP would shed Bt23 from its stock price as a result

of the loss from its Australian drilling unit. That would

cut its crude-oil sales 10 per cent to 253,000 barrels

per day next year, from an initial projection of 282,

000bpd. Its profit will decline 29 per cent this year

and 23 per cent next year.


"But we don't think PTTEP will abandon the Australian

operation, since it has about 32 million barrels in oil

reserves," the analyst said.


In a research note, Ayudhya Securities said if oil

production were delayed by 18 months to the third

quarter of 2011, PTTEP's net profit would decline

Bt37.28 billion, or 14 per cent, next year.


The securities house suspects the fire will also pressure

the company's fourth-quarter net profit this year,

because the company must book the cost of battling

the blaze and massive oil spill.


The brokerage said it was highly possible production

could be delayed, because PTTEP had to consider

whether damage to the well-head was too great for

production to resume.


If so, PTTEP may have to build a new well-head

platform to replace the damaged one, which would

take at least 18 months.