PTTEP expects oil prices to stay high: Five highlights from its latest earnings

What happened?

Oil stocks are back in the spotlight recently. 

The recent geopolitical developments in the Middle East have led to increased volatility in oil prices. 

We have also seen a spike in the price of brent crude oil to above US$90 per barrel with concerns that there might be potential disruptions to supply with a further escalation of tensions in the Middle East.

With higher oil prices, the Singapore Depository Receipt (SDR) of PT Exploration & Production (PTTEP) has seen gains of roughly 20% since the start of trading on SGX in May. 

PTTEP reported its third quarter earnings on 27 October – Here are five things we learnt from its latest earnings report. 

What we learnt from PTTEP’s latest earnings 

#1 – Production volume grew compared to the previous quarter

PTTEP reported production volume of 467,452 barrels of oil equivalent per day (BOED) in the third quarter, a 5% increase compared to the previous quarter.

The increase in volume compared to the previous quarter is driven by stronger sales volume from its G1/61 project in Thailand as it ramps up production.

With accelerated additional well drilling and wellhead platforms installation, the G1/61 project has successfully ramped up its natural gas production from 210 million standard cubic feet per day (MMSCFD) to 400 MMSCFD at the end of June 2023

Management expects to be able to further grow production from the G1 project to 800 MMSCFD in April 2024. 

There was also higher crude oil sale from Malaysia Block K Project as production normalized after a shutdown in the previous quarter for maintenance work. 

PTTEP has kept its sale volume guidance for 2023 at 463 KBOED, which will imply higher production in the fourth quarter of 2023. 

In addition, production volume is expected to expand at a compounded annual growth rate (CAGR) of 6.3% from 2022 to 2027.

#2 – Average selling price higher compared to the previous quarter

The average selling price rose to US$48.62 per Barrel of Energy (BOE) in the third quarter from US$45.72/BOE in the second quarter. 

This was driven by an increase in oil prices in the third quarter, as the average Dubai price rose to US$86.63 from US$77.59 in the previous quarter. 

This led to an increase in PTTEP’s average liquid selling price to US$81.89/bbl from US$73.66 in the previous quarter. 

However, PTTEP’s lower gas selling price was a drag to its weighted average selling price in the third quarter. 

The average selling price of PTTEP’s gas fell to US$5.75 per million British thermal units (MMBtu) from US$5.87/MMBtu in the previous quarter.

Management attributed the decline in average selling price of gas to a time lag of up to 12 months for price adjustments.

In other words, the lower average selling price of gas in the third quarter would reflect the lower oil price in the second half of 2022. 

PTTEP has maintained it guidance for the average gas selling price to be US$6.0/MMBtu in 2023. 

#3 – Higher operating expenses incurred 

PTTEP’s unit cost rose to US$29.12/BOE in the third quarter from US$26.41/BOE in the previous quarter.

This was driven by an increase in operating expenses, which rose to US$7.51/BOE with the shutdown of some projects.

Depreciation, depletion and amortization (DD&A) expenses rose to US$14.60/BOE in the third quarter from US$13.79/BOE in the second quarter.

Royalty expenses also rose slightly to US$2.48/BOE in the third quarter from US$2.31/BOE in the second quarter. 

With an average unit cost of US$27.23/BOE in the first nine months of 2023, management have maintained its guidance for unit cost in 2023 to be in the range of US$27 to US$28/BOE.

This would represent a slight improvement from the average unit cost of US$28/BOE in 2022.

#4 – Reported profit further impacted by higher taxes and non-operating losses

With the higher production volume and average selling price compared to the previous quarter, PTTEP’s revenue rose to US$2.29 billion in the third quarter from US$2.07 billion the the second quarter.

However, higher unit costs and taxes, as well as non-operating losses dragged its profit lower. 

Total tax expenses rose to US$484 million in the third quarter from US$385 million in the second quarter due to high tax expenses from its Oman and Malaysian projects. 

There was a loss of Bt655 million from oil price hedging following the increase in oil price in the third quarter compared to the previous quarter.

In addition, there was a loss of Bt197 million from foreign exchange forward contracts due to fluctuations in the exchange rate between the US dollar and Thai Baht. 

#5 – High oil prices expected in fourth quarter

Management of PTTEP expects oil prices to remain elevated in the fourth quarter, and forecasts the price of Dubai crude oil to fluctuate in the range of US$80/bbl to US$90/bbl.

In addition, the company expects sales volumes to improve in the fourth quarter as it ramps up production from the G1/61 Project in Thailand. 

Combined with a unit cost of US$27-28/BOE, PTTEP has maintained its EBITDA margin guidance of 70-75% for 2023. 

What would Beansprout do?

With the latest third quarter results, PTTEP’s net profit of US$1.69 billion in the first nine months of 2023 would be 7% above the same period in the previous year. 

In addition, PTTEP is directly leveraged to oil prices, and may benefit should oil prices rise further from current levels. 

PTTEP has a dividend policy to pay out at least 30% of its net profit, and has paid out dividends representing 40% to 71% of its profit from normal operations since 2018. 

In 2022, the company paid out a total dividend of THB 9.25, including an interim dividend per share of THB 4.25 and a final dividend per share of THB 5.00. Together, this would represent 40% of its profit from normal operations. 

Based on its share price of THB 169 as of 27 October 2023, this would translate to a dividend yield of 5.5%.

PTT Exploration and Production (PTTEP) Singapore Depository Receipts were recently launched on the Singapore Exchange, and trades under the stock code SGX: TPED.

This means that you will be able to gain access to PTTEP in the same way that you are buying and selling a Singapore stock through a trading platform which offers access to the Singapore Exchange. 

If you are interested to learn more about PTTEP, read our in-depth write-up about the company here. 

To find out more about Singapore Depository Receipts, read our introduction to the product here.