Origin Energy Ltd

 
Resilient Energy Markets: Formed in 2000 and headquartered in Sydney, Origin Energy Limited (ASX: ORG) is Australian listed public company which manages energy businesses that includes production of natural gas, and generation of electricity.
 
Shareholding update: On 6^th December 2019, the company announced that Frank Calabria, one of the company’s director have disposed 60,000 Common Shares for $8.75 per share.On 6th November 2019, Frank Calabria, who holds a direct interest in the company disposed 570,150 options and 57,739 Performance Share Rights under an Equity Incentive Plan.
 
Quarterly Update:During the quarter ended 30 September 2019, Origin Energy LimitedAPLNG production increased 3%, year over year, primarily due to better-than-expected accessibility and the ERIC pipeline coming online as compared to previous quarter. APLNG revenue increased 7% year over year, mainly due to better oil prices and enhanced LNG volumes. 
Sales from Energy Markets electricity went down 8% year over year owing to lower-than-expected business sales, lower customer numbers coupled with market changes. Volumes of Energy Markets gas was down 7% year over year quarter due to absent of wholesale contracts in the near-term. The company’s increased 143% year over year and came in at $97 million.
 

Quarterly Results (Source: Company Reports)
 
What to Expect:In FY20, Australia Pacific LNG’s production is predicted to be in the range of 690 to 710 petajoules. The company updated APLNG break-even outlook from US$33 and US$36 per boe to US$31 and US$34/boe. In FY20, Energy Markets’ Underlying EBITDA is now expected to in the range of $1,400 – $1,500 million. During fiscal 2020, corporate costs are now expected to be between $60 to $70 million. The company continues to expect capital expenditure and investments, to be in the range of $530 to $580 million.
 

FY20 Guidance (Source: Company Reports)
 
Valuation Methodology: P/E Multiple Approach

P/E Multiple Approach (Source: Thomson Reuters), NTM: Next Twelve Months
Note: All forecasted figures and peers have been taken from Thomson Reuters
 
Stock Recommendation:As per ASX, the company’s stock is trading above the average of its 52-weeks trading range of $6.030 - $8.790. Over a period of 1 year, the stock has reported a positive return of 26.7%. The business has attracted further growth opportunities, after constant production at Australia Pacific LNG, elevated effective oil prices and cost control measures. Hence, considering the above factors, we give a “Hold” recommendation on the stock at the market price of $8.570, up 0.469%.
 
 

Oil Search Limited

 
Continuous Achievement in PNG Oil Field Exploration Programme are Key Catalysts: Established in 1929, Oil Search Limited (ASX: OSH) is involved in the oil and gas exploration and production in Papua New Guinea. The company has approximately 51% interest in major oil assets situated in North Slope of Alaska. On 5^th December 2019, the company provided a detailed update report on exploration and appraisal drilling status. In November 2019, the company stated that the drilling of Gobe Footwall recoded a 17-½ inch hole with 1,260 metres of depth. By the end of the month, the well was 2,226 metres deep.The company plans to further continue with the drilling initiatives. Total production during the first half of 2019 was 14.1 mmboe, up more than 38% year over year.
 
Quarterly update: During the quarter ended 30 September 2019, the company reported third-quarter total production of 6.81 mmboe, down 10% year over year. Total volume sales of during the period came in at 6.47 mmboe. Total revenues stood at US$361.1 million, down 24% year over year. Cash in hand during the quarter came in at US$547.3 million. Credit facilities amounted to US$635.7 million.  The company’s net debt came in at US$3,042 million as compared to US$2,871.6 million reported at the end of year-ago quarter.
 

Q3 FY19 Results (Source: Company Reports)
 
Outlook:For 2019, the company expects oil search-operated production to be in the range 2.8 – 3.5 mmboe. Total PNG LNG production in FY19 is expected to be 24 – 26 mmboe, whereas Oil Search production net production is expected to be 27 – 29 mmboe. Further, the company expects investment expenditure to be in the range of US$823-883 million. Other operating costs for the period went up slightly to US$140 - 150 million, primarily due to due to lower-than-expected recoveries from overheads and higher execution costs. The Company intends to drill and explore Gobe Footwall Well in the coming quarter.
 
 

Oil Search Net Production (Source: Company Reports)

Valuation Methodology: Price to Cash flow Multiple Approach


Price to Cash Flow Multiple Approach (Source: Thomson Reuters), NTM: Next Twelve Months
Note: All forecasted figures and peers have been taken from Thomson Reuters
 
Stock Recommendation: As per ASX, the stock is trading above the average of its 52 weeks high-low. As on 6 December 2019, the company’s market capitalisation stands at ~ $10.83 billion, with 1.52 billion outstanding shares. The company has a liquidity management plan and aims in drilling and exploring existing Gobe production facilities, extend the life of the mature Gobe fields and therefore postponing field rejection. The company has forward plan to drill ahead into the target lagifu and Toro reservoir. Considering the above factors, valuation, and recent announcement for construction of purified spherical Graphite for BAM Project, we have a “Buy” rating on the stock at the current market price of $7.060 per share, down by 0.563% on 6^th December 2019. 

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