PTT E&P Eyes More Unconventional Deals after Oil Sands Buy

BANGKOK (Dow Jones Newswires), Dec. 1, 2010

PTT Exploration & Production's $2.28 billion investment in Canada's oil sands is a bet on North America's economic recovery, but it also provides a platform for the Thai company to strike other deals for unconventional fuels.

PTT E&P wants unconventional energy to be an increasing part of its operations, reflecting the difficulty it has faced in buying conventional oil and gas fields at a time of growing resource nationalism around the world, and mounting competition for them.

The company's options are further constrained because it lacks the technology to compete with majors like ExxonMobil or Total in frontier regions, such as deep-water drilling or the icy waters of the Polar regions.

Its strategy is mirrored by Asian rivals such as PetroChina and China Petroleum & Chemical, which have invested billions of U.S. dollars to access Canada's oil sands---a mixture of sand and a tar-like ultra-heavy crude called bitumen--in recent months.

Canada has an estimated 170 billion barrels of oil reserves, ranking second behind Saudi Arabia. Its appeal as an investment destination for cash-rich Asian companies is further underpinned by political stability and a transparent regulatory regime.

PTT E&P Chief Executive Anon Sirisaengthaksin described the purchase of a 40% stake in the Kai Kos Dehseh oil-sands project in Canada from Norway's Statoil as a transformational step, because it expands the company's technical know-how and opens the door for more agreements.

"Statoil is the project's operator and we'll take part in operating. Therefore, we can learn the technological know-how from Statoil, which is one of the world's leading companies in heavy oil and deep-water exploration and production," said Anon.

Asian companies working with international energy majors or specialist companies in order to learn about the technology they use to develop unconventional energy resources is nothing new.

Chinese and Indian companies, for example, have this year made several large investments in U.S. shale gas projects, with a longer term goal of using the technology in developing reserves at home.

PTT E&P plans to sign a memorandum of understanding with Statoil on other possible joint ventures in early 2011, Anon said.

Such a partnership will help PTT E&P reach its goal of producing 900,000 barrels of oil equivalent per day by 2020, up from around 260,000 barrels of oil equivalent a day now.

Ayudhya Securities analyst Charnvut Taecha-amorntanakij said PTT E&P will likely become a more attractive partner for other companies with unconventional resources as it begins to master the technology being used by Statoil in Canada.

"It's a far-sighted vision. Unconventional resources will play a greater role and can boost earnings in the future when conventional resources are becoming exhausted," says Kim Eng Securities analyst Kittichan Sirisukarcha.

However, PTT E&P's strategy isn't without risk.

Oil-sands projects generally incur higher production costs than conventional oil fields, meaning investors require crude futures prices to remain high to turn a profit. That's partly because oil sands must be run through upgraders to be converted into usable crude oil.

Oil sands projects are also a target for climate-change campaigners and some politicians as they are energy intensive, emit large amounts of greenhouse gases and use large amounts of water.

The U.S. has previously introduced draft legislation that might penalize refiners for using emissions-intensive oil-sands output without adequate greenhouse gas control measures.

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