Oil Spill Presents Opportunity: PTT

Despite the negative publicity surrounding PTT’s oil spill in the Gulf of Thailand, there are likely to be few repercussions and any damage to their share price merely provides an investment opportunity.

"Cleaning" up the Rayong Oil Spill

On the 27^th July 2013, a pipeline owned by PTT, a Thai majority state-owned oil company, burst while oil was being transferred from an undersea well to a tanker. By the next night, the oil had spilled to the famous resort town of Koh Samet resulting in the beaches’ closure and its tourists being evacuated. The oil spill has caused widespread concern about the environmental and health impact of oil operations in the Gulf of Thailand on local residents. For instance, mercury levels were reported to be 29 times safe limits and the use of dispersants have caused oil to sink to the bottom of the sea and further damage the local environment. Even people swimming in the sea have reported dizziness and there have been reports of oil operation corollaries causing cancers, kidney and liver problems. Official reports said the oil spilled was in the range of 310 billion barrels of oil (50,000 litres), yet critics say the government has downplayed the oil spill’s magnitude as well as the health risks posed from the use of chemical dispersants afterwards. In fact, other estimates from academics have put the oil spill as high as 1,200 billion barrels of oil (190,000 litres). The use of Corexit to clean the oil spill will likely increase the toxicity of oil in the sea by 52 times and can continue to have lasting health impact for many years. One of the main ingredients of Corexit is 2-Butoxyethanol which makes up 60% of the dispersant and is well-known to harm the blood, liver, kidneys and central nervous system.

Turning the CSR Pyramid on its Head

As a result of the negative publicity, PTT shares dived from around THB340 to THB310 overnight. The share price has now settled at around THB320, demonstrating that Asian investors are much less concerned about corporate social responsibility than Western investors.

For PTT and Asia it's all about the Marketplace

Therefore, it seems like a good time for an investors looking for profit to put their money into PTT. It is a share that has increased in value by 80% over the past five years and regularly pays a dividend of around 3.80%. It is also a company that has performed strongly over the past year, bar the oil spill, hitting a high of THB 368 per share in February 2013. PTT is engaged in the whole supply chain of providing oil, petrochemicals and natural gas, from exploration, production, refininery, procurement and transport to distributing through retail sales at service stations and exporting overseas. This business is especially big money in Asia where a Thai producer has advantages in selling to other Asian countries hungry for energy such as Japan, South Korea, Taiwan and China.

The Asian Energy Opportunity - LNG at the Forefront

PTT also has other long-term strengths. Their strategy is focused on long-term investments overseas whilst recent mergers have consolidated their 3 core businesses – natural gas, oil, and petrochemical and refinery businesses. This has allowed them to generate around THB5 trillion revenue per year and could push them into Fortune’s top 50 largest companies by 2018. This is partly because of recognition that PTT will have to seek new energy sources abroad to ensure the company’s continued growth as local energy sources within Thailand are limited and declining fast. In fact, over 50% of PTT’s future investments are slated for overseas with the USA particularly attractive for PTT as they are due to become a major supplier after unlocking shale gas and oil deposits. As one of the region’s major energy companies they also have a headstart on opportunities within ASEAN countries and are one of the first energy companies to start exploration in Myanmar from September 2013. Finally, they have strong financial potentially to invest in these many future opportunities with a debt-to-equity ratio of 4:10.