Tasked with securing natural resources for the country, Thailand’s PTT Exploration & Production has been scouring the globe and picking up assets from Alberta to Mozambique.
However, Tevin Vongvanich, the company's 56-year old chief executive officer, has also been looking close to home. In April PTTEP, the upstream oil and gas arm of 66% state-owned PTT, bought the Thai assets of US oil and gas company Hess for $1 billion.
"We initially look for assets around Thailand to supply to the Thai market," Vongvanich told FinanceAsia in a phone interview from Bangkok. "An asset like Hess is going to be on our radar as it sits well in our portfolio."
As a result of the deal, PTTEP increased its stake to 60% in a natural gas field operated by Chevron in the Gulf of Thailand and took over the operatorship of natural gas fields in the Udon Thani and Khon Kaen provinces of northeast Thailand.
Western oil and gas giants have pulled back from Asia as they face more pressure from activist shareholders to focus on more profitable home markets. This has thrown up opportunities for national oil companies in the region like PTTEP.
"I expect this consolidation to continue," Vongvanich said. "Most of the major and independent oil companies are focusing on their core area and looking at the possibility of divesting non-core assets."
Vongvanich, a chemical engineer by training, is looking to double the company's production capacity within the next few years. So as the output of Thailand's oil fields plateaus he expects to make further acquisitions.
“We are looking at producing assets with proved reserves,” he said. “We are producing 330,000 barrels per day and our aspirational target is to reach 600,000 barrels per day by 2020.”
Competition
Given its proximity PTTEP is naturally keen to expand its operations in neighbouring Myanmar, where the company already has stakes in three producing gas fields: Zawtika, Yadana and Yetagun.
But as PTTEP explores the region for more assets it faces increased competition from other Asian state-owned companies. In September, Arkansas-based Murphy Oil sold its Malaysian oil and gas assets to Indonesian state oil giant Pertamina for $2 billion.
Vongvanich said PTTEP took a quick look at Murphy Oil's assets but declined to comment further or about what other specific assets it is eyeing.
Like other oil and gas companies globally, PTTEP is under pressure from shareholders to improve returns as oil prices weaken, which means it needs to keep a lid on costs.
“The industry is facing the challenge on how to optimise its capital expenditure," Vongvanich (pictured left) said. "That’s what PTTEP is doing; we are reviewing cost and capex spending and looking at rationalising our assets as well.”Xavier Jean, a Singapore-based analyst at Standard & Poor’s, said PTTEP has to balance the government's needs to secure energy for the country against the needs of its other public shareholders to create value and not overpay for assets. "Whether the company might pay a bit more than private companies, maybe that is a possibility," he told FinanceAsia.
Vongvanich said the company has an internal hurdle rate [of return] and has picked its assets selectively, adding that its acquisitions allow PTTEP to grow to the benefit of all shareholders.
A PTTEP spokeswoman declined to provide a number for the hurdle rate but said that it “varies depending on the asset type and associated geological, technical and country risks, to name a few.” She added, “The higher we deem these risks are, the higher our internal hurdle rate will be.”
Seeking partners
PTTEP has ploughed money overseas in recent years but it hasn’t always been smooth sailing. In 2010 it paid Norway's Statoil $2.3 billion for a 40% stake in Canada’s Kai Kos Dehseh oil sands project, at the time a record overseas investment for a Thai company. Norway’s Statoil kept a 60% stake and continued to operate the project.
The project in the oil-rich Alberta region has since hit a few bumps due to the high extraction and transportation costs. So in January this year PTTEP and Statoil agreed to swap their interests at Kai Kos Dehseh, with PTTEP taking over 100% of three specific areas – namely Thornbury, Hangingstone and South Leismer – and Statoil taking over Leismer and Corner.
This allows the two companies to forge their own path in developing the assets.
"The direction for future development is a bit different between us and Statoil," explained Vongvanich. "We decided to swap the assets and split, so we are in control of our own destiny," he said.
Having parted ways with Statoil, PTTEP is looking for new partners to help spread the risks associated with its Canadian assets. "If there [is interest] from potential partners we will consider the farmout," Vongvanich said.
It is a similar story elsewhere. "The same thing goes for our assets in Australia, for Montara and Cash/Maple. We will look for partners to share the risk with us or help us with technology,” he said. He added, though, that PTTEP is still expanding and has no plans to pull out of any country.
PTTEP is focusing on its core assets, which include its operations in Thailand, Myanmar, and elsewhere in Southeast Asia, as well as its Cove asset in Mozambique. The company is also selectively looking for exploration assets. In September it agreed to buy a 20% stake in a Brazilian offshore oil and gas concession from Royal Dutch Shell for an undisclosed sum.
S&P's Jean said PTTEP has a track record of repairing its balance sheet every time it makes a sizeable acquisition. For example it tapped investors for a $3 billion rights issue in 2012, shortly after it acquired Cove Energy, a London-listed company that held 8.5% stake in the Mozambican asset. It also issued a $1 billion hybrid in June.
"The debt management of the company is pretty solid," Jean said.
Vongvanich is confident that the company can make more acquisitions without straining its balance sheet. "We are in a pretty healthy position in terms of funding for additional acquisitions," said Vongvanich. "We have not set any specific M&A target but we are open to any attractive opportunity that fits with our strategy."
Playing down the politics
Due to its close ties to the Thai government PTTEP has seen changes at the helm amid the nation’s recent political upheaval. In May, Thailand's constitutional court ordered Prime Minister Yingluck Shinawatra and nine of her cabinet members to step down, charging her with an abuse of power after she replaced the country's national security chief in 2011 with a relative.
Following a military coup, supporters of her brother Thaksin Shinawatra's former Pheu Thai Party government stepped down from senior positions in various state enterprises. In June several board members including Pranpree Bahiddha-Nakura, previously a deputy Pheu Thai Party leader and PTT chairman, stepped down to make way for the overhaul of the state-owned enterprise.
Former energy minister Piyasvasti Amranand and former energy permanent secretary Pornchai Rujiprapha were subsequently appointed to the board.
Despite these changes Vongvanich said PTT's strategy remains the same. "It requires some time for our new board members to understand our business strategy but I don't see any big change in the direction we are going because we are serving national energy security," he said.
