{"id":59542,"date":"2012-02-22T12:40:58","date_gmt":"2012-02-22T01:40:58","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/02\/22\/a-big-year-ahead-for-oil-search\/"},"modified":"2012-02-22T12:40:58","modified_gmt":"2012-02-22T01:40:58","slug":"a-big-year-ahead-for-oil-search","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/02\/22\/a-big-year-ahead-for-oil-search\/","title":{"rendered":"A Big Year Ahead For Oil Search"},"content":{"rendered":"

\n\t – Oil Search delivers solid full year result
\n\t – This year a big one for exploration and capex<\/span>
\n\t – A farm in and T3<\/span> could also deliver value
\n\t – Brokers remain positive on the stock<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tUnderlying net profit for Oil Search ((OSH<\/span>)) for 2011 was US$236 million, a result broadly in line with market expectations. Along with the result management reiterated production and cost guidance for 2012, meaning post result changes to broker models were relatively modest.<\/p>\n

\n\tWhile guidance is unchanged, BA Merrill Lynch suggests 2012 will be a big year for Oil Search, as there will be significant exploration drilling carried out in PNG<\/span> and capex<\/span> for the LNG project in that country should hit a peak.<\/p>\n

\n\tThe latter coincides with peak construction for the PNG<\/span> LNG project and if successful, the development progress this year should significantly de-risk the project from a cost and schedule perspective in BA-ML's view.<\/p>\n

\n\tFor JP Morgan, the significance of the exploration work to be undertaken is the potential for enough gas to be found to fill T3<\/span> at the PNG<\/span> LNG project. The timing of exploration centred<\/span> on T3<\/span> has slipped a little, so at the earliest the broker suggests any FID for Train 3 will now likely be no earlier than 2014.<\/p>\n

\n\tAny go ahead on a third train is significant for valuation, as Citi<\/span> estimates a discounted cash flow valuation for Oil Search including PNG<\/span> T1<\/span>&2 is around $6.80 per share, increasing to $8.26 per share assuming an unrisked<\/span> T3<\/span>.<\/p>\n

\n\tOil Search plans to find a farm-in partner for its interests by the middle of this year and Citi<\/span> notes there is strong interest from a number of players with good credibility in the LNG sector. On an unrisked<\/span> basis, Citi<\/span> values a two train project at around $3.00 per Oil Search share assuming a farm down to a 30% stake, or $2.00 per share if FID is delayed until 2016.<\/p>\n

\n\tThis value is enough for Citi<\/span> to upgrade to a Buy rating, from Neutral previously. The upgrade also reflects recent share price underperformance<\/span> by Oil Search relative to both Woodside ((WPL<\/span>)) and Santos ((STO<\/span>)).<\/p>\n

\n\tBA-ML similarly sees value, pointing out Oil Search at present is trading at an 8% discount to the valuation of producing assets and PNG<\/span> LNG T1<\/span>&2. With Exxon having a good history in terms of project execution, BA-ML suggests risks to valuation from the PNG<\/span> LNG project are skewed to the upside.<\/p>\n

\n\tThe likes of Deutsche Bank and RBS<\/span> Australia also see good value in Oil Search, especially given positive views on the likely direction of oil prices in the year ahead. The FNArena<\/span> database shows a total of seven Buys for Oil Search compared to one Hold, the odd man out being JP Morgan.<\/p>\n

\n\tThe first point in support of JP Morgan's rating is signs cost pressures are increasing. As an example, the broker notes opex<\/span> guidance for 2012 is US$21-$24 per barrel of oil equivalent, up from US$19-$21 per barrel last year.<\/p>\n

\n\tThe other point made by JP Morgan is while Oil Search appears attractive at current levels, there is better value elsewhere in the sector. JP Morgan's sector preference is Santos.<\/p>\n

\n\tOn the back of Oil Search's full year result the adjustments to broker models have had only a limited impact on share price targets. The consensus target according to the FNArena<\/span> database now stands at $8.33, up from $8.24. Targets range from Citi<\/span> at $7.82 to BA-ML at $9.02.<\/p>\n

\n\tShares in Oil Search today are higher and as at 11.20am the stock was up 16c<\/span> at $6.88. This compares to a range over the past year of $5.43 to $7.64 and implies upside of better than 21% relative to the consensus price target in the database.<\/p>\n

\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Oil Search delivered a solid 2011 result and with 2012 a big year for exploration and progress at the PNG LNG project, equity brokers continue to see valuation upside.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[24],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59542"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59542"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59542\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59542"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}