PTTEP Keen to Add Hess’ Southeast Asian Assets to Portfolio

Rigzone Staff 11/28/2013

PTT Exploration and Production Plc (PTTEP), Thailand’s national upstream energy firm, has set its sights on adding mature upstream assets in Thailand and Indonesia that have been put on sale by U.S. independent oil and gas company (IOC) Hess Corp.

The proposed acquisition is expected to boost PTTEP’s oil and gas production in Southeast Asia’s second largest economy. The Thai firm will also become the second company in the region after Malaysia offshore oil and gas services provider SapuraKencana Petroleum Bhd to purchase upstream assets from an American IOC this year.

Thai Concerns about Energy Security

Thailand is the second largest energy consumer in Southeast Asia, at 118 million ton of oil equivalent in 2011, or 20 percent of the region’s demand, according to the “Southeast Asia Energy Outlook” published by the International Energy Agency (IEA) in September. While the country has hydrocarbon resources, these are relatively limited compared to growing demand, which is estimated by the IEA to increase by an average of 2.3 percent annually between 2011 and 2035. As such, Thailand remains heavily reliant on energy imports, currently and in the future.

Oil and gas comprised seven-tenths of Thailand’s energy mix in 2010, with oil accounting for 39 percent of the total and gas 31 percent, statistics from the United States Energy Information Administration (EIA) indicated. Oil will remain the dominant fuel in Thailand, with demand set to rise from 1 million barrels of oil per day (MMbopd) in 2012 to 1.6 MMbopd in 2035, according to the IEA, while natural gas consumption is projected to rise from 1.483 trillion cubic feet (Tcf) in 2012 to 2.295 Tcf in 2035.

Increased urbanization is expected to boost Thai electricity demand, which is poised to grow by an annual average of 3.8 percent from 2012 to 2035, the IEA data showed, while gas demand will remain high as the fuel accounted for 68 percent of power generation currently.

“Thailand’s concerns about security of gas supply have been increasing for a number of years and were further heightened by the interruption of gas supply due to routine maintenance on a gas platform in Myanmar in April 2013,” the Paris-based IEA said.

The country’s net import dependency looks set to climb to around 50 percent in 2035, when the country’s net oil and gas import bill totals about $100 billion, up from near $30 billion in 2011, IEA projections revealed.

 

Given apprehensions over energy supply security, PTTEP is looking for opportunities to augment its current oil and gas production levels, which accounted for 32 percent of Thailand’s total output in 2011, the EIA said. The firm produced 286,578 barrels of oil equivalent per day (boepd) in third quarter 2013, down from 292,228 boepd in the corresponding period last year, according to Oct. 29 data released by the company. Gas comprised 66 percent in PTTEP’s production, while oil made up the remaining 34 percent.

Looking further ahead, PTTEP plans to produce 600,000 boepd of petroleum in 2020 from both local and overseas upstream assets, compared to 314,000 boepd in 2012, when production was derived primarily from domestic sources and a few projects in neighboring Myanmar and Malaysia, company data indicated.

Hess Offers Upstream Blocks

Hess aimed for a focused portfolio of higher growth and lower risk exploration and production (E&P) assets as part of its plan to become a pure E&P firm by 2014. It plans to pursue “additional E&P asset sales by pruning [its] Asian portfolio to focus on the long lived, low risk Malaysia/Thailand Joint Development Area (MTJDA) and the North Malay Basin,” Hess said in its March 4 letter to shareholders. Hess began a “sale process for [its] mature E&P assets in Indonesia and Thailand,” the company added in an April 15 letter.

In Thailand, Hess offered its stakes in the Sinphuhorm Project, where it has a 35 percent operating interest. The project produces about 64 million standard cubic feet per day (MMscf/d) of natural gas and 258 barrels of condensate per day in the third quarter, PTTEP data revealed. The Thai company has a 20 percent interest in the onshore development.

Hess is also exiting from the Contract 4 Project in the Gulf of Thailand, which contains the offshore petroleum fields of Pailain, Nin, Morakot, Paytai, Ubon and Taptim. The U.S. company has a 15 percent interest in the Chevron Corp.-operated development, while PTTEP holds a 45 percent interest. The development produces 386 MMscf/d of natural gas and 15,493 barrels of condensate per day in the third quarter.

In Indonesia, Hess is selling a 23-percent equity in the Natuna Sea Block A production sharing contract (PSC) in the South China Sea and a 75-percent operating interest in the Ujung Pangkah PSC in Gresik, East Java.

In June, Kuwait Foreign Petroleum Exploration Company (Kufpec) sold its 25 percent stake in Ujung Pangkah PSC for $265 million to PT Saka Energi Indonesia, a subsidiary of gas distributor PT Perusahaan Gas Negara (PGN). The Ujung Pangkah block currently produces about 40 MMscf/d of natural gas and 7,000 barrels per day of oil and condensate, local media Jakarta Post reported.

 

Strong PTTEP Interest in Hess Regional Assets

Hess’ offer to sell its interests in Thai upstream assets naturally drew interest from PTTEP, which already has stakes in the Sinphuhorm and Contract 4 developments.

“We are interested in Hess’ assets because we are already partners in the two Thai fields,” PTTEP CEO Tevin Vongvanich told Reuters.

“PTTEP is looking to buy [given the firm’s long-term objective of increasing petroleum production] and the opportunity came along,” Naphat Chantaraserekul, an analyst with DBS Vickers Securities (Thailand) Ltd. told Rigzone.

PTTEP is expected to clinch Hess’ assets in Thailand because it is an existing stakeholder in the developments, which gives the firm the option of acquiring interests offered by a fellow joint venture partner who plans to exit the blocks.

“If they win the bid for the Thai assets, it will be good for the company as they are operating assets [which are already revenue generating],” Maybank Kim Eng Securities (Thailand) Public Company Ltd. analyst Sutthichai Kumworachai told Rigzone.

Getting producing assets has become more important for PTTEP as first gas from the company’s acquisition of an 8.5 percent stake in Area 1 in Mozambique’s Rovuma Offshore Basin in August 2012 is scheduled for 2018. PTTEP’s interest in Hess’ regional assets indicated that the firm now prefers producing assets as “the recent deal in Mozambique will take 6 years before production … [and] the company cannot wait that long,” Suttichai said.

“For assets in Indonesia, this is a good opportunity for us to expand our investments in the country where we already have operations,” PTTEP CEO Tevin was quoted by Reuters.

 

PTTEP currently participates in several exploration projects in Indonesia. They includes the Malunda, Sadang, South Mandar and South Sageri projects in the Makassar Strait and the Semai II project, located offshore West Papua.

While PTTEP will go it alone to acquire Hess’ Thai assets, industry observers believe that it may be a financial strain for the company to make bid alone for the two Indonesian upstream blocks on offer. The value of Hess’ upstream in the two countries is estimated at around $3.2-3.9 billion, Naphat said in an Oct. 21 note to investors. Given the high acquisition cost, it is possible that the Thai firm will make a joint bid to purchase the Indonesian assets.

“I do not think that PTTEP will buy 100 percent of the offered blocks in Indonesia … if that is the case, it will be quite a stretch [for the firm financially] … PTTEP may bid as part of a joint venture with a regional entity,” Naphat said.

If PTTEP confines the acquisitions to Hess’ Thai assets, it is not expected to face any serious financial problems.

“It will not be much of a financial burden as the projects are [relatively] small … the company can finance the acquisitions through cash flow from operating assets and debt financing,” Sutthichai added.

Last month, SapuraKencana Petroleum paid $898 million to acquire all equity interest in Newfield Malaysia Holdings held by Newfield Exploration Co., giving the Malaysian integrated oil and gas services provider a foothold in the country’s upstream sector.

Hess is expected to close the deal for the sale of its upstream assets in Indonesia and Thailand before the end of this year. PTTEP will have to wait until then to find out if it succeeds in adding more producing assets to its oil and gas portfolio.

URL: http://www.rigzone.com/news/oil_gas/a/130311/PTTEP_Keen_to_Add_Hess_Southeast_Asian_Assets_to_Portfolio

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About artidj

I started working as a field engineer in Oil & Gas industry back in 1996. I do this news clipping of the industry and the geography I am interested in, mainly for my own information. I'm glad you find it useful.
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