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PTTEP interested in BG’s Thailand assets

Thailand’s state-backed PTT Exploration & Production has reportedly expressed an interest in UK BG’s Thai assets.

Thailand’s state-backed PTT Exploration & Production (PTTEP) has reportedly expressed an interest in UK BG’s Thai assets. BG holds a 22.2% stake in the producing offshore Bongkot field, on the market for around $1.2bn.

Thai banking sources say that no foreign company is going to try to outbid PTTEP at home, while the lack of clarity on licence extension makes a foreign bid unlikely too.

BG also holds three exploration permits in the highly prospective, but disputed waters of the 27,000 km² Thailand-Cambodia overlapping claims area (OCA). The Thai side of the OCA, where BG’s blocks sit, is considered more prospective than the Cambodian side. But BG declined to comment if those blocks were on the market too.

Reuters reported that BG plans to sell its sole producing asset in Thailand by the end of the year through investment bank Morgan Stanley. It would be the first major asset sale by BG since Shell announced its plan to buy the UK gas player in April.

BG remains an independent company until the merger with Shell completes in early 2016 and there is no specific requirement for BG to seek Shell’s approval for asset sales, unless they are material enough that they would erode significant value. “They would need to run this by Shell, but they don’t necessarily need Shell’s permission,” said a source close to the dealings. Bongkot made up 6% of BG’s global gas production in 2014.

With a balance sheet boasting $3.7bn in cash, as well as single-digit gearing, PTTEP is best positioned among the southeast Asian national oil companies (NOCs) to scoop up new assets in the low oil-price environment. The Bangkok-based company is keen on deals in southeast Asia, particularly as the international oil companies start to rationalize their portfolios.

Estimates for reserves in the OCA range widely, but the South East Asian Petroleum Society has published ‘best guess’ reserve estimates of between 8 and 15 trillion ft³ of gas and between 400m and 1bn barrels of liquids. Australian bank Macquarie puts the gas reserves at between 1.4bn and 3.6bn barrels of oil equivalent (boe) gross. Even if reserves came in at the lower end of the range, the development of the area, believed to be gas rich, would be transformational for both Thailand and Cambodia.

Analysts are fairly certain that PTTEP would like to get its hands on BG’s exploration licenses, but it remains to be seen how much they would be willing to pay and at what price BG would be willing to part with them, given the potential upside if the OCA issue can be resolved.

Bongkot started producing in 1993 and the field’s license will expire in 2023 with a 10-year extension possible. But Thailand’s fiscal terms have come under attack from powerful NGOs that claim they are too generous. Thailand’s Petroleum Act is now being reviewed and its upstream sector is at risk.

The uncertainty surrounding the expiration could be a motivating factor behind the sale, Macquarie said in a research note. License extensions with lower producer stakes are likely, expects Trevor Buchinski, a Bangkok-based energy specialist at the bank. Given the expiration risk, foreign companies might be reluctant to bid for Bongkot.

At $1.2bn, Macquarie considers the possible sale price fair with potential upside from reserve revisions and license extensions.

Dual licensing - awards on both sides of the OCA

BG’s net production from the Greater Bongkot project, which includes the north and south fields, stood at 39,000 boe/day in 2014, gas making up about 85% of that volume. PTTEP operates the Bongkot joint venture with a 44.44% interest and French major Total holds the remaining 33.33%.

High stakes in overlapping claims area

General Anantaporn Kanjanarat, who was appointed Thailand’s energy minister in a surprise move 20 August, replacing Narongchai Akrasanee, has the means to resolve a territorial dispute in highly prospective frontier waters between Thailand and Cambodia. He has said improving the nation’s energy security and resolving the OCA would be priorities. Among his tasks are moving forward with the long-delayed 21st upstream exploration bidding round and resolving the question of expiring licenses for legacy production projects.

Analysts believe the military junta, which seized power following a coup in May 2014, could push through an agreement on the OCA with much less resistance than its predecessors who struggled with accusations of selling out the national interest.

Resolving the OCA dispute could boost Thailand’s natural gas reserves by as much as 65%, drive billions of dollars worth of spending and replace expensive energy imports. Thailand will increasingly need to rely on imports of liquefied natural gas as its domestic production is waning. For Cambodia, which has no domestic petroleum industry, the development of the OCA would bring gas to the country and provide much-needed government revenues.

International oil companies such as UK BG, US Chevron and ConocoPhillips, French Total, Japan’s Idemitsu and MOECO have been waiting for Thailand and Cambodia to agree a resolution for decades.

Cambodia and Thailand have both awarded blocks in the waters, which aside from addressing revenue sharing and fiscal regimes, means the issue of dual licensing needs to be overcome. Cambodia split the OCA into four areas and Thailand handed out 11 blocks.

Thailand is heavily reliant on gas for electricity generation and proved (1P) gas reserves stand at about seven years, threatening the kingdom’s energy security. This goes some way to explaining its determination to gain access to some of the giant gas reserves in east Africa where in 2012 it outbid Shell to acquire Cove Energy which owned a stake in the Rovuma basin off Mozambique.

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