Relatively weak global oil prices have pushed PTT Exploration and Production Plc (PTTEP), the only SET-listed upstream oil business, to delay its final decision to invest on its wholly owned Mariana Oil Sands Project (MOSP) in Canada, said the president and chief executive Somporn Vongvuthipornchai.
This is the third postponement in as many years, and is estimated to cause an asset impairment of US$550 million (18.2 billion baht), and PTTEP to suffer a loss of 9 billion baht in the third quarter. But stock analysts said the company's overall performance is still promising, with plenty of cash on hand.
"Through active and continuous assessment of the industry, and the commercial feasibility studies for MOSP, PTTEP has made a delay the project's final investment decision," said Mr Somporn.
He said the $550 million loss will be booked in the company's consolidated financial statement for the third quarter.
May Bank Kim Eng Securities said in its analyst report on PTTEP that the impairment would not have any impact on its cash on hand, its annual capital expenditure or its sales volume as the MOSP project has already been excluded from its annual capex.
"The negative impact will only be seen in the short term. The share prices closed last week below the book value price and we estimate the impact will hammer the price down this week by 4.6 baht," said report said.
The impact is expected show up in the third quarter performance. May Bank Kim Eng Securities expects PTTEP to have a net loss of 9.4 billion baht in the third quarter, reversing from the previous forecast of 9.4 billion baht net profit.
But for the whole of 2017 the company is still expected to have a net profit of around 5.96 billion baht, well below the previous forecast of 24.5 billion baht.
The loss will also affect its parent company PTT Plc, the oil and gas conglomerate, which holds a 65.3% stake in PTTEP.
May Bank Kim Eng Securities expects the share prices of PTT Plc to drop by around 4.2 baht per share.
Yuanta Securities also estimates PTTEP shares will drop by 4.6 baht per share, while PTT shares could drop by 4.2 baht. It expects PTTEP to have a net loss of 9.5 billion baht in the third quarter due to the asset impairment, against the previous forecast of 8.87 billion baht net profit.
MOSP was put off again due to weak oil prices, causing the company to book impairment for the project for the third time in three years. As a result, PTTEP's total writedowns from the project are at $1.8 billion.
PTTEP's decision marks the latest blow to the oil sands industry in Canada, where dozens of projects have been shelved due to high startup costs at a time that global oil prices remain relatively low.
"The losses will not have any impact on [PTTEP's] cash flow. However, it would hurt earnings," a Trinity Securities analyst said.
PTTEP previously booked impairments of $626 million in 2015 and $640 million in 2014 on the Mariana project, which it acquired in 2010 for $2.3 billion. The company acquired the project completely in 2014.
The latest adjustment on the project reflects low oil prices, according to an analyst from Krungsri Securities.
The delay of the project falls in line with PTT's strategy of focusing more on liquefied natural gas capacity and gas assets.
PTTEP had total cash of 143 billion baht, or $4.31 billion, as of June this year, marked for acquisitions to build up reserves and participate in gas field auctions for the Gulf of Thailand later this year.
It is also expected to announce a final investment decision on its Mozambique Rovuma Offshore Area 1 Project by the end of this year.
PTTEP president and chief executive Somporn Vongvuthipornchai said the recognition of such impairment losses are done in accordance with accounting standards, and do not impact the company's cash on hand and cash flows.
PTTEP shares closed on the SET yesterday at 85.75 baht, down 50 satang, in the trade worth 841 million baht.
