Oil Search Limited

Fat Prophets

Monday 11th May 2015

Sharechat.co.nz – Hot Stock

Oil Search Limited

What’s new?

Aussie energy giant Oil Search Limited continues to ride the Papua New Guinea liquid natural gas wave, as the facility ramps up toward commercial production. On a barrel of oil equivalent (boe) basis, Oil Search Limited reported 1Q15 production that was 311% higher than the corresponding 2014 quarter, at 6.9 million boe. Boe production for the reported quarter was positively impacted by the continued ramp-up of the company’s PNG LNG facility, which commenced commercial operations in the June quarter 2014. While LNG production chipped in with a robust performance, oil production was lower for the quarter.

LNG production hit a record at 23,059 million square cubic feet. LNG production is solely sourced from the company’s PNG LNG facility that is now ramping up to its nameplate capacity of 6.9 million tonnes of LNG per annum.

Encouragingly for investors, the strong increase in Oil Search Limited’s production was enough to offset the marked decline in the oil and LNG/natural gas prices received for the quarter, such that revenues increased by 178 percent to US$472 million.

Liquidity in the balance sheet improved to 31 March 2015, with cash of US$1.1 billion, compared to US$960.2 million at 31 December 2014. The debt pool at the 31 March 2015 stood at US$4.3 billion (all of which is PNG LNG project finance), which compares favorably with the US$4.4 billion at 31 December 2014.

Outlook

Production guidance for 2015 remains unchanged in the range 26 million to 28 million boe, which compares to the record 19.3 million boe that was produced in 2014. We expect this to be complemented by a recovery in both the oil and LNG/natural gas prices over the balance of 2015. We also expect to see an improvement in the company’s debt position going forward, as revenues improve and expenditure on capital development reduces.

Price

Oil Search Limited’s share price continues to be depressed following the sell off at the closing stages of last year. However, with current levels beginning to consolidate above support at $6.87 momentum appears to be on the mend. Furthermore, as the share price has been consolidating below resistance at $8.38, and with the 14 day RSI virtually neutral, a renewed push to the upside seems to be very plausible over the coming weeks.

Worth buying?

Our primary interest in Oil Search Limited is the value represented by its PNG LNG operations. The 30 year plus facility will underpin the long term value this company has the potential to generate, as well as fund ongoing exploration and development activities. While offshore PNG continues to add exploration blue sky, in a region with an excellent energy pedigree. Although early in the year, there is nothing operationally in the first quarter result that concerns us.

The current weakness in the oil price and the impact this has had on the share price does offer an opportunity to gain exposure to the company.

Disclosure: Fat Prophets, and interests associated with the company, hold shares in Oil Search Limited

David Lennox is the Resource Analyst at Fat Prophets share market research. To receive a recent Fat Prophets Report, call 0800 438 328 or Click here.

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