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Thailand's PTTEP boosts gas production, reserves with contract wins

Singapore — Thailand's energy ministry has awarded the renewed production sharing contracts for two major gas fields to PTT Exploration and Production Public Co Ltd, boosting the state-run oil company's gas production and reserves profile at a time when the country's output has been flagging.

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PTTEP's auction wins for the Erawan and Bongkot natural gas fields in the Gulf of Thailand underscore how national oil companies are securing greater control over petroleum reserves in Asia, and the shrinking presence of oil majors in the region.

It also raises several questions about the tougher fiscal terms under which the new contracts are being awarded and whether the renewals of petroleum concessions in coming years will be done at similar terms with a higher share for the government.

On Thursday, the energy ministry announced that PTTEP won the bids for the expiring G1/61 (Erawan) and G2/61 (Bongkot) gas field concessions, overcoming a rival bid by Chevron's Thailand subsidiary for Erawan and a joint bid by Chevron and Mitsui for Bongkot.

PTTEP made a joint bid for the Erawan field with Mubadala Petroleum's Thailand subsidiary in a 60%-40% partnership, and an individual bid for the Bongkot field. The Erawan field is currently operated by Chevron and PTTEP is the operator of the Bongkot field.

The Bongkot and Erawan gas fields are considered vital to Thailand's energy supply and their combined gas production accounts for 60% of total domestic output, PTTEP said.

"Our proposed development and investment plans will enable us to produce natural gas at the required production levels of at least 700 MMSCFD and 800 MMSCFD from the Bongkot and Erawan fields, respectively, during the PSC regime," chief executive Phongsthorn Thavisin said.

He said PTTEP has an investment plan for Erawan when it takes over in 2022, and immediate field development plans for Bongkot, where it is already an operator, to ensure continuity in gas supply.

Being an operator in both fields will help save costs in the Gulf of Thailand and bring economies of scale by combining activities like procurement and logistics, he added.

OIL MAJOR EXITS

The auction result highlights the continued departure of oil majors from key petroleum acreage in Southeast Asia.

"This is the second major loss for Chevron in Southeast Asia after losing its Rokan asset to Pertamina in Indonesia earlier this year. Chevron's reserves and production in the region is now expected to fall drastically post-2022, and Southeast Asia could become a non-core region for the major," Wood Mackenzie analyst Jean-Baptiste Berchoteau said.

He said Chevron's focus is likely to turn towards the Permian play in the US where it recently increased its budget by 10%, even as it decides the level of capital expenditure for Erawan until the ownership transition to PTTEP in 2022.

Chevron Thailand said in a statement that it was "deeply disappointed that it was not the preferred bidder for the Erawan and Bongkot blocks," despite bids based on its experience operating in the Gulf of Thailand.

"Our bids allowed for the necessary investment to maximize recovery of Thailand's resources," Chevron said, adding that it respected the decision of the government.

CONCESSION RENEWALS

Berchoteau said PTTEP had made an aggressive bid on the gas price and the profit share, and the low gas price constant value of $3.55/mmbtu reflects its competitiveness to meet the government's need for affordable gas.

However, Thailand's gas prices are linked to oil and the recent fall in crude oil prices along with a higher profit share for the government have raised some concerns among market participants.

"While we consider the contract award as a positive from a volume/reserve addition perspective, we believe such positives are likely to be overshadowed by concerns around the future profitability of the fields," Nomura analyst Abhishek Nigam said in a report.

He said a lower future gas price could dent PTTEP's profitability, and it remains to be seen how it will maintain margins via cost reductions and cost synergies despite a lower gas price for the new contracts.

Additionally, under the new contracts, the government's share comprising royalties and other components will rise to 68%-70% from 50% earlier. "While this was expected by the market to some extent, it does limit upside to PTTEP under the new contracts," Nigam added.

--Eric Yep, eric.yep@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com