Bangkok--Nov 4--Moody's
Moody's Investors Service has affirmed the A2 local currency issuer rating of PTT Exploration and Production Public Company Ltd (PTTEP) and the A2 foreign currency bond rating of its guaranteed subsidiary PTT Exploration & Production International Ltd.
This affirmation incorporates the rating agency's decision to raise the
baseline credit assessment of PTTEP to 3 from 4. The ratings outlook remains stable.
In accordance with Moody's GRI rating methodology, the A2 ratings of
PTTEP reflects the combination of the following inputs:
- Baseline credit assessment of 3 (raised from 4; on a scale of 1 to 6,
where 1 represents lowest credit risk)
- A2 local currency rating of PTT
- High dependence
- High support
The improvement in baseline credit assessment reflects PTTEP's
strengthened operating and financial performance and the industry's solid fundamentals. The company has been recording very strong performance due to strong prices and growth in production, and over the next 2 years, production is expected to be further boosted when the major Arthit gas development project is completed. PTTEP's credit profile continues to benefit from lower cash flow volatility relative to other E&P companies, due to its gas sales which are subject to long-term contracts and to prices that are less volatile than crude oil.
PTTEP has been spending material capex on developing its projects, the
major one being Arthit in the gulf of Thailand which is planned for completion in 2007. However, PTTEP's credit profile has benefited from the favorable environment for oil over the past 24 months, and from add-on acquisitions and field development, enabling it to generate strong operating cash flow. By deploying much of the operating cash flow to fund its development projects, Moody's expects PTTEP to maintain its conservative financial leverage.
With the recent Pogo acquisition in Thailand and the planned commissioning of Arthit and other projects, PTTEP's production is expected to grow to 83-85 million barrels of oil equivalent (boe) in 2007 compared to sales volume of 54 million boe for the 9 months to September 2005. Accordingly, debt coverage measures should strengthen materially from 2007 due to the increased production, assuming the oil prices do not deteriorate materially below our base case assumption.
The upgrade in the baseline credit assessment from 4 to 3 has no impact on PTTEP's A2 rating.
The high dependence reflects PTTEP's close operating and financial proximity to PTT and the strong credit correlation between these two companies.
The high support reflects the strategic importance of PTTEP to PTT, which translates into high incentive for PTT support.
The A2 foreign currency bond rating incorporates all the above factors
and adds convertibility risk, which is the likelihood of the government declaring debt moratorium to counter a foreign currency crisis. As such, PTTEP's foreign currency rating is a function of its own risk of default (as indicated by its local currency rating), the probability of a Thai government default on its foreign debt (implied by its Baa1 rating), the likelihood that the government would declare a debt moratorium in the event of a default and, if it did, the chances that it would exempt a company such as PTTEP.
PTTEP's stable rating outlook reflects the underlying strength and relative stability of its cash flows.
The A2 rating could go up if PTTEP demonstrates consistent progress in
developing its growth projects in line with expectation, leading to higher boe reserves and continued strengthening in financial profile.
Indicators Moody's would consider include proved reserves increasing to
2.0 billion boe, and RCF-Maintenance Capex/Adjusted Debt trending towards 80% or higher. An upgrade of PTT's rating to A1 or a decrease in the dependency to medium could also trigger an upgrade of PTTEP's rating.
On the other hand, the A2 rating could go down if there are major disappointments in project development, or sustained deterioration in Thailand's domestic gas consumption. Indicators Moody's would consider in this respect include RCF-Maintenance Capex/Adjusted Debt trending towards 50% or lower, and full cycle ratio trending above $12/boe. A downgrade in PTT's rating from A2 to A3 or a decline in the support level to medium could also trigger a downgrade in PTTEP's rating.
PTT Exploration & Production Public Co. Ltd is an oil & gas exploration
and production company headquartered in Bangkok. It is listed on the Stock Exchange of Thailand and is 66.5% owned by the PTT Public Company Ltd, which in turn is 65% owned by the Kingdom of Thailand.
Sydney
Terry Fanous
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100
Hong Kong
Gary Lau
Senior Vice President
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121 End.