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ASIA FOCUS
PTTEP confident that it can manage challenging conditions in the oil markets of many countries where nationalist sentiment is rising, reports Umesh Pandey
Depleting domestic reserves coupled with higher returns in regional markets could be pushing Thai companies to move outside the country, but they need to be aware of risk management to mitigate any adverse impact from changing political or geographic conditions.
PTT Exploration and Production Plc is one company that has been expanding to neighbouring nations as well as to Iran, Algeria, Egypt and Oman. Given current conditions in the oil market, it needs to keep a close eye on the growing pressure on governments to take or retake control of petroleum assets.
"There is a trend among a lot of countries to shift their views in this kind of direction (of preserving national assets), as everyone is now seeing value in fossil fuel and wants to preserve it for the future," Anon Sirisaengtaksin, the chief executive officer of PTTEP said in an interview.
PTTEP earns 20% of its revenues from outside of Thailand and aims to raise this to 50% in the near future. The company is looking to form joint ventures to achieve that target.
PTT is moving out of Thailand because resources that are available in Thailand's boundaries are depleting quickly.
Mr Anon believes that host countries are not going to pull the plug on companies such as his or others such as Banpu, which derive nearly 90% of its revenues from outside Thailand, because nationalistic feeling often trumps common sense.
He said PTTEP had the technical expertise to exploit foreign energy sources, and was not overly concerned about threats to its assets in foreign countries.
"The companies in these countries have the know-how but not all of them have the expertise to undertake the massive tasks that lie in exploring and producing oil and gas," Mr Anon said.
"I believe that these nations are not going to close their doors to foreign investors, but they may change the revenue-sharing [agreements] that they usually have."
He hoped that older contracts would be honoured as any changes may hurt investor confidence and have a longer-term impact on the company.
"These are the kinds of risks we anticipate and work with when we go outside Thailand, and the returns that we get justify the risks we take," he said.
Citing the example of Iran, he said that if companies such as PTTEP did not enter underexplored markets at this time, they would be unable to compete against international oil giants.
Iran is under heavy western sanctions and has been trying to attract investors, but most are reluctant due to the cumbersome regulations in the country.
The key, Mr Anon says, is to limit a company's exposure in each country.
"Once we see uncertainty in the market that we operate, we start to scale back our operations and try to mitigate our risks," he says.
The key is risk assessment, which is done during the exploratory phase of the work when PTTEP starts to move into a particular country, while a strong, well-connected local partner can help the firm survive during rough times.
"Alliances are very important, alliances that test the level of connections that the partners have is one fundamentally very important aspect of doing business abroad," he said.
PTTEP is looking to expand in countries in which it currently operates, rather than into uncharted territories.
"Our aim is to build the critical mass in each of these markets," Mr Anon said, adding that PTTEP was looking to venture into high-risk partnerships with higher returns. "We are now looking at partnering with companies across the world for non-conventional oil and gas exploration and production," he said. He added that PTT was focusing on 'heavy oil' and small oil and gas fields.
Smaller fields account for about 70% of the global oil and gas reserves but are not tapped by most large oil firms as they are not financially viable."This is the kind of technology where we need foreign expertise and once we have it we can go out to various countries and undertake operations. ... There is no company in the world that is doing such a thing yet, despite the heavy demand," he said.
Floating liquefied natural gas (LNG) plants are another option the company is exploring as building pipelines from these small fields does not make financial sense.
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