Bangkok May 9, 2020 (Thomson StreetEvents) — Edited Transcript of PTT Exploration and Production PCL earnings conference call or presentation Friday, May 8, 2020 at 2:00:00am GMT
PTT Exploration and Production Public Company Limited – CEO, President & Director
Good afternoon to analysts and investors. Welcome to the analyst meeting first quarter of 2020 financial results. Today is the first time that we have organized a meeting through the application. So everyone can interact with us from home. My name is (inaudible). I will be the host for today. Before we begin, please kindly mute your microphone. First of all, according to PTTEP tradition, we have a [she] moment. At this time, everyone may have to work from home to reduce the spread of COVID-19. So we would like to recommend exercising in just 15 minutes for good health. We invite everyone to watch the video on work out from home tip. Please enjoy.
So please exercise, stay safe and keep healthy, everyone. Today, we are honored to have our management team first is Khun Phongsthorn Thavisin, our President and Chief Executive Officer, who will be the speaker for this session. Next is Khun Natruedee Khositaphai, our Executive Vice President of Strategy and Business Development Group; and Khun Sumrid Sumneing, our Executive Vice President in Finance and Accounting Group, who are here with us, should you have any questions. To start our event, I would like to invite Khun Phongsthorn to speak about our strategy, the impact and responses under the challenging situation. Also our financial performance for this quarter. Thank you.
Phongsthorn Thavisin, PTT Exploration and Production Public Company Limited – CEO, President & Director [3]
Hello, everyone. Well, first of all, let me take off the mask. I’m sure that the COVID wouldn’t transmit through the wire, anyway. Well, this is an unconventional setup, okay? Normally, roadshow be on the road. This time, we will be very far from each other. First of all, I hope that you’re all doing fine. Okay? And hope everyone would be away from COVID-19. I think I would start to share with you what have we done during the impact from the COVID-19 and also during the time of this price war. So this time also, just like a déjà vu, but it’s not really as such. This time, we’ve been hit by oversupply, short demand also full of inventory. So this time is still the perfect setup for the oil company.
Next, talk about the COVID first, how we respond, okay. Actually, we managed to set up the task force to cope with this pandemic quite fast. I think at the beginning of March, we set up the task force to try to prepare to handle this pandemic. And also by the first week of March also, the situation in some countries that we have our people working abroad. I think the first country is in Algeria that we de-mo our people out just before the time that they stop flying, okay? The last one would be in Myanmar, where we demobilized the last crew of 14, 2 days ago. So now all of our expat staff has returned home safely. And we still COVID-free, all organization, and we hope to remain this way.
How we manage in the corporate. After we set up the task force at the beginning of March, by maybe the third week, we decide to work from home, okay? We set up as 2 crews, alternate crew. But not even 1 week yet, we have to put everyone to work from home as 100%, okay, until the end — until the beginning of this month, okay? Now we are in the rotation crew of 3, okay? We set up as an ABC, and if we work for a week, and then we’ll be off to work from home for another 2 weeks. Vice versa, okay? So we will remain this way until the situation is clear. And so far, I think we handled it quite well. I think we have to thank to the last crisis that we have transformed our organization quite a bit, and we set up a lot of digital transformation that ease us to handle this situation. And also on this side, we make sure that our people who rotate to the operating side will have a quarantine of 14 days, okay? And so far, so good, we will remain this way until this situation is clear.
And also with this pandemic, also, we are supporting our frontline organization like the hospital and some of the government agency to trying to ensure that the medical doctor, nurse and medical person are safe from this COVID-19, okay? We support them with this, what you call, the mobile bed that have the negative pressure to ensure — to ensure that the doctor will be saved from COVID-19, okay. We distribute that to 87 hospital country-wide. And also with the equipment like the PPE, the N95 masks. And also, we are supporting the development of the vaccine. No, the development of the, what you call, testing kit, okay? Testing kit, where we can ensure the quick screening of these people under investigation. So that’s about all that we have done so far. And I think we will keep it this way until there’s another major development in terms of how we would control and kill this virus.
On this case, I think we’re talking about the oil market that’s facing shortest of demand by the COVID that everyone have to stay home. And also with the disagreement between Saudi Arabia and Russia in the OPEC+. So at the beginning, they decide to flood the market with the supply. But okay, now I think they come to — they come to understand that we will all, in the deep trouble, if they continue this way. At the moment, situation seems to look to be better now, okay? What I understood, the inventory problem seems to be resolved gradually now. I think most of the country is heading to unlock the lockdown situation. So it will be sure that there will be a drastic increase in terms of the demand, okay?
Yes, in this low oil price situation for PTTEP, now people are looking at it like we have to behave differently, okay? What we call as a new normal but actually, PTTEP be facing the new normal 4 years ago, 4, 5 years ago, during the time that we facing the shale oil revolution, okay? So I think we understand how to handle the situation, okay? And our people really familiar with the word new normal, but this one is a newer version of new normal, anyway, with the COVID. So what we handle with it. Actually, if you remember 4, 5 years ago, when we’re being hit with the low oil price, so we have a campaign of Save to be Safe, okay? That is more like CapEx and OpEx had reduction. And after we have the budget cut, then we move on to SPEND SMART campaign, okay? This one, we are trying to encourage all the employee to introduce the initiative that make PTTEP more efficient. And also, we’re looking also on the production gain. So we are trying to balance it to win, to cut and to grow. And after that, maybe 2 years ago, we said we need to transform the organization. We cannot just do a simple budget cut or just trying to increase the efficiency. We got to be ready for the next wave, which is, I think 4 years is too quick that they return, okay? So during 2 years ago, we launched the transformation program called Enterprise. This Enterprise, we — in that — we will have to do the transformation in terms of the digital and also, we need to transform our organization. We got to make our organization much leaner. And also we had to reduce our discrete cap in terms of the approval to ensure that we can move faster, okay, and be more decisive and focus. So now we may have to add one more element at this time, okay. Instead of doing only digital transformation and organization transformation, we will set it as a new normal transformation. This new normal transformation would be a combination of SPEND SMART program that we did launch years back. And also, we will need to think of new — really new way of working, which we could not imagine before, okay? Like work from home, no one really imagined that we can manage the work from home as now. Anyway, this program we will be launching and I think we will see a bit more impact in terms of the — in terms of the cost elements, okay?
If you remember 4, 5 years ago, we used to have a unit cost at about $43 per barrel. And since then, we are managing to get it back down to about $32, in this range, okay, with the cash costs about $15. I think after the program that we are doing, the budget cut now, and also, once that we’re launching the initiative of the new normal, we would be able to see — I have this number in mind, okay, that we would try to push it down to below $30 a barrel, okay? Let’s see how we will manage.
Let’s move to the next one. So in terms of the outlook and the action plan, okay, the outlook for this year, if you remember at the beginning of the year, we projected the volume at about 390,000. And now we have to revise down to about 360,000, okay. That’s an effect from the nomination reduction from PTT and also with some of the effect that we are facing during this low demand. So we would be about 10% less at the end of the year.
In terms of the price, even though the liquid price dropping sharply, but our gas price is a term price. So it doesn’t affect that quickly. So if you see the average sales price in the middle one. So yes, we still have — we still take some effect from that price drop, but it’s not as bad. And also in terms of the cash margin. As I mentioned before, we have a cash cost of $15. So we still have in terms of the margin, at the moment — so most of the assets that we have in hand, we still far above the — far above the cash cost of $15. The short term, we already exercised the budget cut that in the range of about 15% to 20% reduction. Majority is in the CapEx, okay? For the OpEx, at the moment, it’s about 10%, but we will try to do more, okay? And for the long term, as mentioned before, we plan to do the new normal transformation, okay? So all the initiative that will result in terms of the more efficiency, reduced cost. And eventually, I think that would be a new norm for PTTEP in terms of the work practice.
Next. I think that would be my last page. I want to let you know how we see in terms of this strategy, okay. At the beginning of the year, we are talking that we will try to create more value out of our legacy assets, okay? And also in terms of this transition of the asset that we bought last year, we will try to do this managing of the unit cost or the cost element. And also what we’re saying that we will try to forecast more in terms of the exploration, okay? We are not doing in terms of M&A during 2020 because of — we want to ensure that all the one that we did last year would be — we would get the transition modeling first, okay? And we look in the long term. So we want to ensure that the exploration is — will pay off much better than taking M&A asset.
In regard the development project for Mozambique, everything is on track. We still confirm 2024 first cargo, okay? I understand from Khun Sumrid that the loan deal, the project finance deal, will be signed soon, within a month? Yes. And also on the pre-project development, following the discovery of this Lang Lebah, the asset in Sarawak in Malaysia. So far, we passed (inaudible) for the development with the Malaysian government, okay? So we are looking for another high pressure well in Q4. And if everything according to the plan, we would be FID by the end of 2021. Okay. With the — we the first gas by 2026. Okay. So even though we’re facing this COVID, the thing is still progressing. Not as fast, but we still can manage.
As mentioned also in terms of the transition, in the Gulf of Thailand. So everything is still on plan, on plan with the operatorship transfer. And also now, we are focused in terms of how we can increase efficiency, okay, to create more value in manage the asset that we guided from last year. For the expansion, okay, as I mentioned, we — this year, we planned not to do the M&A. But this year, with the situation developed with the COVID-19 and the price war, I think this time, there could be an opportunity that we could look for, okay? This time is different from 4, 5 years ago. 4, 5 years ago, it just — it’s just a matter of the supply side, okay? So during that time, the — even though the low oil price, is not so many deals that have been have — that have been made success because of the seller is expecting the higher price. The buyer looking for a low bargain price. So they never made so much of the deal at that time. But this time, it’s different. This time, I think we would — we could see some of the company who have a good asset but they may have trouble to manage in terms of the financial, okay? And that could be an opportunity. But anyway, whatever opportunity comes, it will have to be fit with our strategy. It will have to be fit with our area of interest. We will not pick up just anything that — that’s cheap anyway, okay.
In terms of the AI and robotic, okay. That is a company that we — that we set it up 5 years ago. So far, so good. They have been progressing quite well. But I think we have another challenge to try to push them. They, so far, they have been quite successful in terms of the — building the product. But I think we would like to see them to drive in terms of the business, okay? So let’s see, during this year, we will try to push them much more. And another one that has been quite a few years back is a gas to power project in Myanmar, okay? Now we already submit everything to the Myanmar government, and we are still waiting, okay, for their positive response. We’d like to go to chase up with them, but with the no flying, so we can — so we cannot do much, okay?
So that’s about all. I’d like to wrap up again in terms of this strategy that we will try to focus on our transition, okay? And also on the creating the value out of the legacy assets. So far, PTTEP, in terms of the portfolio, we have about 70-plus percent in terms of the gas. We still have the secure market. So we should not have that much effect apart from what I mentioned that we may reduce in terms of volume about 10%. In terms of the exploration, we now — I think we reduced some of the exploration while we defer some, okay? And also we will open our eyes for the opportunity if it’s really fit with our strategy, okay? So maybe that’s about what I would like to share with you. If you like to ask question?
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Questions and Answers
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Operator [1]
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Thank you, Khun Phongsthorn, for the speech. (Operator Instructions)
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Unidentified Analyst, [2]
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Hello, can I ask a question?
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Operator [3]
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Yes, sure.
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Unidentified Analyst, [4]
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Okay. Firstly, for the presentation. The question was more related to strategy. You talked about the new normal. How are you kind of thinking in terms of the portfolio as to what you want to do the next 5 years. How is the level, how are thinking in terms of how you want to be split within the group?
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Phongsthorn Thavisin, PTT Exploration and Production Public Company Limited – CEO, President & Director [5]
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What our portfolio look like we in PTTEP’s group within the next 5 years.
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Unidentified Analyst, [6]
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Yes. And how you try to look at your own portfolio within gas, oil, power and the oil and other things that you want to do.
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Phongsthorn Thavisin, PTT Exploration and Production Public Company Limited – CEO, President & Director [7]
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I think the way we look at the moment, okay, we are under review for the strategy also for the next year. What we mean is that we will try to have to have 80% of the gas in our part with about 20% of liquid because we see that the future for the energy, for the oil and gas industry, would be more like on the natural gas, okay? And when we had the crisis, with the majority of the part with the gas, we will be less impacted by the sharp drop of the oil price. Within the group, I think we still trying to maintain as a — the upstream in the value chain, okay? Nothing changed much. And we also trying to develop a bit more on the gas-to-power project. Gas-to-power project originated from the idea that we — once that we do the exploration, we’ve been successful in terms of finding the gas reserve, we will not just sit and wait for the market to come, okay? We will create the market for our own resource. So that’s what we are trying to — aiming at right now. Okay?
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Unidentified Analyst, [8]
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Okay. And just as a follow-up on that, was that considering that in your balance sheet, you’re focusing on starting to grow — or for them to grow, has COVID done anything in terms of how you are looking at some of these assets and where do you want to grow?
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Operator [9]
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Can you please repeat the question again? Or you can type the question in the chat for us.
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Unidentified Analyst, [10]
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I’ll just repeat it. In terms of this strategy perspective, as you’re looking to grow inorganically, has COVID changed anything in terms of your in terms of where you want to grow, or the markets you want to grow and the pace at which you want to grow as well?
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Phongsthorn Thavisin, PTT Exploration and Production Public Company Limited – CEO, President & Director [11]
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Well, so far, I think in terms of the focus area, we still remain — at the moment, okay, we still remain keeping our focus within the region, which is Thailand, Myanmar, Malaysia, and then hopefully, Cambodia, but that’s a long shot, okay? And the other focus area is in the Middle East, where we still focus in UAE and Oman. With the COVID-19, we — it’s too quick to say that we want to share something. But what I mentioned just now is that we see that there could be an opportunity open up through the COVID-19 crisis. Some of the company will be in trouble, while they still have a good operation, good asset to run but with the sharp drop, they may have the low cash reserve. They could have trouble so we will see if there’s such a thing coming in the near future. But as I mentioned before, we will focus in our area of interest. We will not jump around anyway. Okay.
Next, I will try to answer the question from Andrew, [Andrew Tan], okay? I think you’re asking the cost guidance of $30 or below. How much is coming from DD&A and how much from the lifting costs? I think you see — we have a cash cost of $15, okay? So on the part of the DD&A is about the same. The lifting cost-wise is much less than $15, inventory lifting cost. Lifting cost for PTTEP in average is about $5 to $6, okay. And the CapEx cut, CapEx, I think we had about $600 million or something, $650 million. But total cut with the OpEx is about $750. Andrew, you okay?
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Operator [12]
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Yes, thank you. Are there any more questions?
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Phongsthorn Thavisin, PTT Exploration and Production Public Company Limited – CEO, President & Director [13]
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If there’s — yes, nothing.
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Operator [14]
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If there are no more questions, I would like to thank you all of our management team for the performance presentation and answering all of our questions. I would also like to thank you everyone who attended the event today. Finally, for us to improve the next analyst meeting, please help us answer the questionnaire by scanning the QR code on the last page of the slides. Thank you for your time, and have a nice day.