PTT sees oil collapse as opportunity for US acquisitions
Thailand’s biggest energy company is on the lookout for acquisitions in the US as slumping oil prices pressure drillers with limited access to new funding, according to PTT Pcl’s chief financial officer.
Oil tankers in Songkhla province load fuel at a PTT depot. Thailand’s biggest energy company is on the lookout for acquisitions in the US as slumping oil prices pressure drillers with limited access to new funding, according to PTT Pcl’s chief financial officer. (Bangkok Post photo)
"Maybe six months down the road, if oil prices remain weak, a number of operators could face difficulties, particularly in the States where a number of medium- to small-sized companies have been funded through speculative bonds," Wirat Uanarumit said in an interview at his office in Bangkok on Dec 1. "Funding could be more difficult to find."
Oil has collapsed into a bear market as global demand growth slows and US production rises to the highest level in more than three decades. In the two years after the 1997 Asian financial crisis caused a slump in oil prices, the value of global deals surged more than sevenfold to a combined $376 billion, according to data compiled by Bloomberg.
"The lower oil price will jump start M&A activity as it is likely to cause some distress in the market for highly levered tight/shale oil producers as they generally need an oil price of $90 a barrel to effectively service their debt." said Trenton Gaddis, a partner with Singapore-based Lincoln Liquidity Pte, which advises on oil asset investments, in an e-mail.
West Texas Intermediate crude has fallen by almost a third this year to below $68 a barrel, a decline that accelerated after OPEC last week maintained output in the face of a supply glut.
"The Middle East, I think, could actually withstand very low prices but if I'm not mistaken I think shale oil and shale gas would probably need $60 to $70 to really break even," Mr Wirat said, declining to name any specific acquisition targets. "If you go and look at the stock market, you will see that the share prices of some of these companies have gone down more so than others."
Wirat Uanarumit. chief financial officer for PTT Plc, said the strong financial position of PTT, which is two-thirds owned by Thailand’s government, leaves it in a good position to take advantage of investment opportunities. (Bangkok Post photo)
Mr Wirat said the strong financial position of PTT, which is two-thirds owned by Thailand's government, leaves it in a good position to take advantage of investment opportunities. PTT and its units plan to spend about $30 billion in the five years through 2018, he said.
Bangkok-based PTT is Thailand's biggest company by market value, and combined with its five biggest publicly listed units accounts for about 15% of Thailand's benchmark SET Index, according to the company's website. The stock has gained 28% this year, compared with a 13% drop in the 75-member Bloomberg World Oil & Gas Index.
The company may face competition from larger Asian oil companies including Oil & Natural Gas Corp, India's biggest producer, which has pledged to spend $177 billion by 2030 to increase oil output, partly through acquisitions overseas.
Fitch Ratings said last week that oil's plunge may be an opportunity for Asia's national oil companies to buy assets more cheaply.
Asian nations accounted for 33% of the globe's crude oil consumption last year followed by North America with 26%, according to BP Plc data. China, Japan, South Korea and India, Asia's biggest economies, need to import most of their oil, leaving the onus on their oil companies, many of them state-owned, to secure supplies to bolster energy security.
PTT's exploration unit, PTT Exploration and Production Pcl, in April agreed to pay $1 billion in cash for Hess Corp's stakes in oil and gas assets, adding to its 2012 purchase of Cove Energy Plc's oil and gas assets in Mozambique for $1.6 billion. PTTEP has expanded its investments to more than 40 projects across the globe.
Malaysia's Petroliam Nasional Bhd., or Petronas, has been the most-acquisitive national oil firm in Southeast Asia, spending $24.5 billion since 1998, including $7.1 billion in North America, according to data compiled by Bloomberg. The PTT group's total spend is around half that with about $2.3 billion in North America.