2018PTTEPAREN.pdf - ANNUAL REPORT 2018 PTTEP INNOVATING for SUSTAINABILITY From the beginning \u2026 to today PTT Exploration and Production Public Company


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Unformatted text preview: ANNUAL REPORT 2018 .. PTTEP INNOVATING for SUSTAINABILITY From the beginning … to today, PTT Exploration and Production Public Company Limited or PTTEP has continued to learn, improve, share and pass on the knowledge on petroleum exploration and production by Thais from one generation to the next, to secure a sufficient and lasting energy source for the Thai people. Besides energy security, PTTEP also strives to better the standard of living and well-being of the communities and societies wherever we operate through the implementation of social projects focusing on 4 aspects: basic needs, education, environment and culture. The objective is to instill foundational knowledge in the communities, so that they can become self-reliant and together with PTTEP achieve sustainable growth. We are committed to good corporate governance, business ethics, risk management and regulatory compliance, with a view to fostering trust and confidence in all of our stakeholders and contributing to building a good and harmonious society. Scan here for MV MADE IN BONGKOT Contents 04 06 08 09 28 47 56 65 66 84 85 93 122 177 179 187 Financial Highlights Message from Chairman and CEO Our Business Policy and Business Operations Overview Nature of Business Operation Risk Factors PTTEP and Our Subsidiaries’ Assets Legal Dispute General Information and Other Significant Information Corporate Governance Securities and Shareholders Management Structure Corporate Governance Corporate Social Responsibility Internal Controls and Risk Management Connected Transactions 196 197 203 220 221 279 284 286 Financial Position and Performance Significant Financial Information Management Discussion and Analysis of Operating Results Attachments Information of the Board of Directors, Management, Controlling Persons, and Corporate Secretary Directors of Subsidiaries and Associated Companies Details of Head of the Internal Audit Division and Head of the Compliance Function Asset Revaluation 4 2018 ANNUAL REPORT l PTTEP Financial Highlights Financial Highlights Net Cash from Operating Activities* Net Cash Used in Investing Activities 2,308 2,687 3,276 2016 2017 2018 (544) (665) (1,724) 2016 2017 2018 Cash and Cash Equivalent at the End of the Period** (Million USD) * Including effect of exchange rate changes ** Including short term investment 4,022 4,468 4,001 2016 2017 2018 3,260 4,022 4,468 2016 2017 2018 (1,002) (1,576) (2,019) 2016 2017 2018 Cash and Cash Equivalent at the Beginning of the Period** Net Cash Used in Financing Activities Financial Highlights (Million USD) 19,571 Net Income (Loss) 5,459 1,120 12,020 7,551 594 4,523 372 5,000 Total Revenues 11,517 4,339* 7,505 15,000 10,000 Total Shareholders’ Equity 7,703 11,386 20,000 18,891 25,000 Total Liabilities 19,220 Total Assets 0 2016 2017 * Revenue of PTTEP Oman Company Limited was represented in discontinued operations Dividend per Share (Baht) Dividend Yield (%)** 2016 3.25 3.38 2017 4.25 4.25 2018 2018 5.00* 4.41 * The total dividend of 2018 will be 5.00 Baht per share including the interim dividend at the rate of 1.75 Baht per share and the second half-year operations dividend at the rate of 3.25 Baht per share. Payment of the interim dividend and the second half-year operations dividend will be proposed in the 2019 General Shareholder’s Meeting on March 29, 2019 for acknowledgement and approval, respectively. ** Calculated from PTTEP’s closing share price on period end 5 2018 ANNUAL REPORT l PTTEP Financial Highlights Financial Ratios 2016 71 0.25 3 2 EBITDA to Revenue from Sales (%) Debt to Equity (times) Return on Equity (%) Return on Assets (%) 2017 70 0.25 5 3 2018 73 0.16 10 6 Petroleum Proved Reserves (MMBOE) 695 631 677 2016 2017 2018 319,521* 299,206 305,522 2016 2017 2018 Petroleum Sales Volume (BOED) * Included sales volume of Oman 44 Project until August 2016 Unit Cost Gas and Liquid Ratio for Sales Volume (%) Gas 31 30 69 2016 70 2017 Liquid 28 72 2018 (USD per BOE) 2016 30.46 2017 29.05 2018 31.69 Message from Chairman and CEO Dear Shareholders, 2018 marked another successful year for PTTEP, reflecting continued growth in our earnings, the winning bids for Bongkot and Erawan fields, expansion in the areas where PTTEP is proficient, a new business partnership, preparation in terms of organizational structure and human resources, application of new technologies, and a clearer plan in exploring new business opportunities for sustainable growth. In 2018, PTTEP efficiently operated accordingly to the “RESET REFOCUS RENEW” strategy and our achievements are as follows: Portfolio Management and Cost Control To maintain our profitability and shareholders’ returns, PTTEP increased production from legacy assets. This was achieved mainly through the acquisition of a 22.2222% stake in the Bongkot field from Shell affiliates and continually-controlled production cost which maintained our competitiveness. In 2018, the unit cost marginally increased from USD 29.05 per Barrel of Oil Equivalent (BOE) to USD 31.7 per BOE, as royalty expenses moved up in line with a rise in the average selling price. Additionally, PTTEP also rationalized our investment portfolio in non-core areas. We negotiated for lower obligations in the Mariana Oil Sands Project in Canada. We also divested our investment in the Montara Field in Australia which has been in operation for a long time and experienced high operating costs, which will save expenses in the long term. Investment Expansion to Raise Petroleum Reserves PTTEP focused on expanding and growing business in strategic areas where we have a full range of experience and expertise, namely Thailand and Southeast Asia. We succeeded in this regard with the acquisition of the 22.2222% stake in the Bongkot field and the winning bids for the Bongkot and Erawan fields. While our main goal is to maintain production output for national energy security, we explored M&A opportunities for both green field and brown field projects. We accelerated development of large natural gas projects in our portfolio especially Mozambique Rovuma Offshore Area 1 Project. Long-term LNG Sale and Purchase Agreements (SPAs) have been achieved, for a volume sufficient to reach the Final Investment Decision (FID) in the first half of 2019 as targeted. Regarding exploration activities, PTTEP accelerated exploration plans in Thailand, Myanmar and Malaysia. We searched for opportunities in low-cost areas and hence bid for 2 exploration blocks in Malaysia. Our focus was extended to other petroleum prolific areas such as the United Arab Emirates, in partnership with strategic alliances. Additional investment is expected to raise our petroleum reserves both in the short and long term. Leveraging Expertise and Charting a New Course for New Business Opportunities The energy business landscape has altered along with fastchanging technologies and fierce competition. PTTEP introduced an organizational restructuring by establishing the New Business Unit and Business and Organization Transformation Unit, to search for business opportunities related to petroleum exploration and production and others. Work process was adjusted, while human resources were readied in-line with our strategies that clearly defined investment targets. PTTEP aims to venture into new businesses on top of petroleum exploration and production which is our main business. We set to leverage our expertise in growing new businesses which include the Gas Value Chain through planned investment in an LNG Value Chain project in cooperation with PTT, and Gas-to-Power in Myanmar which will become more concrete in 2019. 2018 Performance PTTEP reaped USD 1,120 million in net profit in 2018, an increase of 89% compared to USD 594 million in the previous year. Sales revenue reached USD 5,203 million, a 22% increase from 2017. Average sales volume increased from 299,206 barrels of oil equivalent per day (BOED) to 305,522 BOED. Average selling price rose from USD 39.20 per barrel of oil equivalent (BOE) in 2017 to USD 46.66 per BOE in 2018. PTTEP posted USD 1,215 million in profit from normal operation (Recurring Net Profit), showing an increase from USD 836 million in 2017 thanks to a rise in sales volume and average selling price. At the end of 2018, PTTEP showed strong financial positions with total assets worth USD 19,571 million against USD 7,551 million in liabilities. As directed by PTTEP’s financial policy, the debt to equity ratio was at 0.16. With cash and short-term investments of USD 4 billion, PTTEP has sufficient funds to finance new investments aiming to maintain production levels as planned, expenses related to the acceleration of Pre-development projects and exploration activities, the preparation of the Bongkot and Erawan fields transition as proposed to the Ministry of Energy, and other M&A activities as specified in the investment strategy. Sustainable Organization, Creating Shared Value to All Stakeholders PTTEP’s sustainable development is aligned with international practices and the United Nations’ standards. PTTEP was consequently selected as a member of the Dow Jones Sustainability Indices (DJSI), in the World Oil and Gas Upstream & Integrated Industry for the fifth consecutive year. PTTEP also remained a constituent member of the FTSE4Good Index Series, in the category FTSE4Good Emerging Index, for the third consecutive year. For the first time, PTTEP was honored with the SET Sustainability Award 2018 - Outstanding category. Importantly, at the ASEAN level, PTTEP won two ASEAN CG Awards for the Top 3 PLCs – Thailand, and Top 50 ASEAN PLCs (Top 10 group) being among the top 10 in ASEAN based on the ASEAN CG Scorecard assessment. PTTEP realizes the importance and necessity of development of technology and innovation. As part of this we have entered into a joint venture to set up the Vidyasirimedhi Institute of Science and Technology (VISTEC) with the PTT Group, which focuses on the education of science, engineering and cutting edge technology, which PTTEP contributes a budget allocation of approximately 3% of annual net profits for technology research and development. In 2018, the R&D activities were geared towards the development and application of technology. These included application of Artificial Intelligence (AI)-based predictive maintenance for critical production equipment, technology to improve the efficiency of subsea equipment inspection such as oil and gas pipelines for environmental-friendly decommissioning work aligned with international standards, and Autonomous Underwater Vehicle (AUV). The 3 prototype projects were tested, ready for implementation in 2019. Aside from that, PTTEP established AI and Robotics Ventures Co., Ltd. for the development and investment in robotics and artificial intelligence (AI) applicable with the exploration and production business. Strategic Plans for 2019 PTTEP has introduced a new vision to become an “Energy Partner of Choice” on a belief that collaboration with strategic alliances is more vital than competition. Strategic alliances, with a shared goal to create mutual values and benefits, will drive the organization towards solid and sustainable growth. Through being an “Energy Partner of Choice”, aside from business gains, PTTEP strives to create shared values with all stakeholders ranging from shareholders, employees, suppliers, the public sector and communities to competitors. Meanwhile, PTTEP’s 3R strategy (RESET REFOCUS RENEW) is upgraded to “EXPAND and EXECUTE” to achieve the organizational goals in terms of business expansion, operations, and cost management at continuously competitive levels. For more than 30 years, PTTEP has been committed to the operations with responsibility to society and community, with 4 areas of focus – basic needs, education, environment, as well as culture. In 2018, PTTEP pushed its successful social projects to another level to ensure continued benefits for the community. For example, the Crab Hatchery Learning Center project in Songkhla Province was expanded to other areas of the province and in Pattani Province; and 2 more SIOLA (Stimulation, Intervention, Optimization of Services for Children) centers were created in West Sulawesi, Indonesia. PTTEP takes pride in helping out communities and societies with its knowledge, technology and innovation. In 2018, our technology was used in the rescue mission of the Wild Boar Academy football team stranded in the Tham Luang-Khun Nam Nang Non cave in Chiang Rai Province. In the mission, a Multipurpose Plant Inspection Octocopter (MPIO) drone was deployed to survey the mountain top to make an aerial map of the terrain in support of the rescue and water drainage operations, helping guide the mission to eventual success. PTTEP’s Board of Directors, executives and employees hereby express our gratitude to all shareholders for their continued trust and support. We assure all that PTTEP will further move forward in ensuring energy security and sustainable development as well as creating economic value for the country under the principles of good corporate governance and business ethics. (Prajya Phinyawat) (Phongsthorn Thavisin) Chairman President and Chief Executive Officer Section 1 Our Business 9 2018 ANNUAL REPORT l PTTEP Policy and Business Operations Overview 1. Policy and Business Operations Overview Form 56-1 Year 2018 1. Policy and Business Operations Overview 1.1 Vision, Mission, Objective and Strategy PTTEP Group is one of the leading E&P companies in Thailand, exploring for sustainable sources of petroleum supply for the country and other countries in which the Company operates or invests in, and generating return that would satisfy the shareholders and stakeholders. In the midst of external complexities, rapidly changing environment, depleting petroleum resources, and geographical complexity, a more advanced technology with a greater capability is required, and so is the need to maintain environmental and social equilibrium. The Company’s mission and vision have then been reviewed and identified. Mission: PTTEP operates globally to provide reliable energy supply and sustainable value to all stakeholders. Vision: Energy Partner of Choice through Competitive Performance and Innovation for Long-term Value Creation Goal and Objective: PTTEP Group continuously and consistently monitors domestic and global economies to conduct energy trend and situation analysis in order to develop effective strategy and execution plan. The Company’s objective is to create the balance between strong performance and business sustainability aspects to the following goals: Strong Performance: Target to have a Return on Capital Employed (ROCE) at a level higher than that the industry’s average and the unit cost in the top quartile of our Asian peer companies Business Sustainability: Target to maintain the proved reserves to production ratio (R/P Ratio) of no less than 7 years by 2025 as well as to achieve a production target of 5% Compound Annual Growth Rate (CAGR) during 2018-2030 Strategy: To attain the above, we have formulated our strategic directions as follows: (1) RESET: To increase production growth and sustain competitive performance by supplying more gas from current level, implementing digitalization to improve productivity and sustain cost competitiveness, increasing reserves through development project execution, divesting non-core assets, and accelerating and/or de-risking exploration projects (2) REFOCUS: To expand core business from two dimensions (2.1) Coming-Home Strategy: PTTEP aims to focus the investments in Thailand and South East Asia where the company designated as strategic investment areas. This includes the plan to accelerate activities in exploration projects located in Myanmar and Malaysia in order to improve petroleum reserves. Moreover, PTTEP is also looking to further expand our business into opportunities such as the Gas Value Chain business in Myanmar in the form of Gas-to-Power projects. (2.2) Strategic Alliance: PTTEP captures new investment opportunity in other petroleum prolific areas with strategic alliances by mainly focusing on the Middle-East where considered as low cost barrel region. (3) RENEW: The Company has transformed the organization and invested in new business focusing on technology and innovation as well as R&D capability to support core E&P business and future investment opportunity related to energy industry. In 2018, PTTEP has re-organized the structure and business operations to improve our agility and efficiency to be in line with our growth strategy. The new organization structure came into effect in January, 2019. Section 1 Page 1 10 2018 ANNUAL REPORT l PTTEP Policy and Business Operations Overview Form 56-1 Year 2018 Procedure to Set the Company’s Vision and Mission PTTEP Board of Directors (Board) reviews and approves the vision and mission of the Company annually, being accompanied generally by the management, through a systematic planning process. The process is started by updating the current business environment and the E&P industry trend, and their implications on the Company regarding opportunities and risks. The role of the Company as a national oil company to provide a reliable and sustainable energy supply for Thailand is also reviewed. In addition, the Company’s investment portfolio is reviewed and assessed on returns and risks to identify the vision, mission, and short-term and long-term strategic directions. These allow the Company to achieve sustainable growth as well as to be able to cope with business changes. The management will then develop the Company’s work plan, budget, and Key Performance Indicators (KPIs), based on the given strategic directions and policies, to be presented to the Board for approval prior to the implementation. After the Board approves the vision, mission, and corporate strategy, the management will cascade down the approved strategic directions and corporate targets to promote a better understanding among all of the Company’s employees. In principles, this will subsequently lead to sub-work plan development and implementation which are in line with the corporate target, work plan, and core values to achieve the Company’s goals at the end. However, the Board also regularly supervises and monitors management’s implementation of stated strategic plans in accordance with business directions and strategies. The management is responsible for reporting its performance in comparison to the strategic plans to the Board of Directors for acknowledgement on a quarterly basis. 1.2 PTTEP Sustainability Management 1.2.1 Sustainability Management Overview PTTEP’s Sustainability Management is an integration of environmental and social responsibility into our business decisions to meet the expectations of our stakeholders, investors, shareholders, business partners, host governments, various communities, and employees. We continuously emphasize effective management of the three pillars of sustainability to reflect all ongoing concerns regarding any environmental and social issues as well as to create value for the Company and our stakeholders. Sustainability targets and strategies, and their implementation are driven by efficient business processes, funding, Governance, Risk and Compliance (GRC) management, innovation and technology, cost reduction, and human capability development to enhance production and to achieve work efficiency. To accomplish this, we have adopted His Majesty King Bhumibol Adulyadej’s (Rama IX) Sufficiency Economy Philosophy (SEP) as the guideline for our business operations and have aligned our sustainability management with the United Nations Sustainable Development Goals (UN SDGs), focusing on Goals 3, 4, 7, 8, and 16, while continuing our support for the rest of the SDGs in our routine operations. Further, we use the Dow Jones Sustainability Indices (DJSI) to measure our sustainability performance at the international lev...
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