PTT Public Company Limited reviews investment and spending plans amidst weak financials-

Thailand-based state-owned oil and gas company PTT Public Company Limited is reviewing its investments and spending plans. Against the backdrop of plunging world oil prices as well as losses from fuel subsidies, PTT has experienced weak financials in 2014. Thus, the company is seeking to sell 25 per cent of its stake in Egypt-based East Mediterranean Gas (EMG). Notably, EMG operates a now defunct natural gas pipeline. PTT had already written off the investment in EMG, as the pipeline had ceased operations. The EMG pipeline, which transported gas from Egypt to Israel under a 20-year deal, collapsed after months of attacks by militants in the Sinai peninsula. PTT had acquired its stake in EMG for $487 million in December 2007.

PTT’s core businesses include petroleum, petrochemicals, power generation, and coal. The company invests in subsidiaries, joint ventures, and associates that engage in upstream and downstream petroleum, coal, power, and infrastructure businesses. Overall, PTT has a diversified international portfolio of energy-related projects. As of December 2014, the company had one project in North America, two in South America, seven in the Middle East and Africa, 15 in Southeast Asia, 17 in Thailand, and one in Australia. With regard to the company’s projects in Thailand, 14 were in the production phase, one in the development phase, and the remaining two in the exploration phase. Further, the company’s registered capital was 28.57 billion baht as of December 2014. Southeast Asia Infrastructure provides an update of PTT’s oil and gas business during 2014…

Gas business unit

PTT’s gas business unit consists of natural gas supply, transmission, processing, and marketing. During 2014, PTT’s natural gas procurement was recorded at 4,691 million standard cubic feet per day (mmscfd). Segment-wise, the power segment consumed about 2,757 mmscfd, accounting for 59 per cent of the total sales. The break-up of gas sales to different segments during 2014 is given in Fig. 1.

The year 2014 began with a major development for PTT’s gas business unit. In January 2014, the construction of a gas pipeline from the Myanmar-Thailand border to Amphoe Thong Pha Phum, Kanchanaburi, was completed. With this, PTT Exploration and Production (PTTEP), PTT’s upstream subsidiary, delivered about 240 mmscfd of gas from the Zawtika field, Moattama Bay, Myanmar, into PTT’s gas transmission pipeline.

During 2014, PTT signed a few gas supply agreements with power producing companies to supply clean energy and raise energy efficiency through efficient power generation. For instance, in January 2014, PTT signed an agreement with Chonburi Power Generation and Siam Eastern Power to supply 381.2 mmscfd of gas each over a period of 25 years. In May 2014, PTT signed another agreement with Gulf NC and Bang Pa-in Cogeneration 2 (Project 2) for the supply of 21.91 mmscfd and 20.65 mmscfd of natural gas respectively over a period of 25 years. Thereafter, in September 2014, PTT inked a deal with IRPC Clean Power, Project 1 and Project 2, for a daily contractual quantity of 24 mmscfd.

Oil Unit

The Oil Unit is in charge of distribution of petroleum products including gasoline, diesel, liquefied petroleum gas (LPG), lubricating oil and lubricating products, and the retail business. During 2014, PTT sold 18,099 million litres of refined petroleum products, an increase of 451 million litres over the quantity sold in 2013. The company’s market share in Thailand’s oil business is the largest, accounting for about 39.3 per cent as of December 2014.

International Trading Business Unit

To expand PTT’s trading markets and become a regional leader in petroleum and petrochemical trading, PTT’s International Trading Business Unit has founded and appointed subsidiaries and agencies in many countries. These include Singapore-based PTT International Trading Pte Limited, United Arab Emirates-based PTT International Trading DMCC, China-based PTT International Trading Guangzhou Representative, and Indonesia-based PTT International Trading Jakarta Representative. With this, PTT’s International Trading Business Unit is managing business transactions in more than 50 countries across the world.

During 2014, the unit posted a total of 67,675 million litres of trading volumes of petroleum and petrochemical products, a decline of 6 per cent as compared to the sales achieved in 2013. The 2014 sales include 41,739 million litres of crude oil, 7,297 million litres of condensate, 15,838 million litres of petroleum products and LPG, and 2,800 million litres of petrochemicals.

Key financials

As mentioned before, PTT experienced weak financials amidst declining world oil prices. This is highlighted by the fact that the company’s net profit (on a consolidated basis) declined by a staggering 45 per cent to 62.5 billion baht during 2014 as compared to 113.56 billion baht in 2013. During 2014, the company’s sales and service income fell marginally by 0.27 per cent to 2,834.73 billion baht as against 2,842.41 billion baht in 2013. Key financials of PTT during 2010 to 2014 are given in Table 1.

Outlook

Against the backdrop of the decline in the prices of liquefied natural gas (LNG), PTT plans to import 3 million tonnes (mt) of the liquid fuel from the spot market in 2015. Overall, the company plans to import 5 mt of LNG in 2015 to help run its LNG receiving terminal fully. In 2011, PTT  signed its first LNG sales and purchase agreement with Qatargas in the form of a spot contract. In order to be able to secure more supplies in the future, PTT is currently in the process of expanding the capacity of its existing LNG receiving terminal by 5 million tonnes per annum (mtpa) to 10 mtpa. The terminal is situated in Map Ta Phut, Rayong province. The expansion project is expected to be completed in 2017.

On the upstream front, PTTEP announced its investment plan worth $24 billion for the next five years (2015-19) in December 2014. The amount would be allocated both in Thailand and overseas. Of the total amount, up to 80 per cent will be invested in Thailand and other Southeast Asian countries such as Indonesia, Myanmar, and Vietnam. The company is also holding discussions with US shale oil producers to buy stakes in the business. It needs to be noted that the investment amount does not include PTTEP’s expenditure for new business opportunities aimed at increasing its petroleum reserves.

In 2015, overall investment expenditure will be $4.83 billion, of which 52 per cent is allocated to maintaining production levels for projects in Thailand, namely the Arthit, S1, Bongkot, Contract 4, and MTJDA-B17 projects. Another 20 per cent will be spent on projects in Southeast Asia, mainly in Myanmar, to maintain production levels for the Zawtika project, development of the Myanmar M3 project, and feasibility studies for that country’s PSC-G and EP-2, MOGE-3, MD-7, and MD-8 projects.