2 Oil Stocks that look decently positioned - ORG, OSH

Origin Energy Limited

Decent 1HFY19 Performance: Origin Energy Limited (ASX: ORG) has a global presence including Australia and New Zealand. The company is into the business of power generation, natural gas production, and retail energy.From the analysis standpoint, the group posted decent first half-year performance wherein revenue from continuing operation was up by about 5.4 percent against 1HFY18, while underlying EBITDA increased by 20.34% and amounted to about $1,727 million against $1,435 million of the prior corresponding period (PCP).The underlying profit came in at $592 million in 1H FY19, on the back of higher oil-linked revenues and reduction in financing costs from lower debt and a lower average interest rate. As a result, the Board of Directors declared a fully franked interim dividend of 10 cents per share and it will be payable on 29 March 2019 with an Ex-date of 1 March 2019 and a record date of 4 March 2019.


1HFY19 Financial Highlights (Source: Company Reports)

The net cash flow from operating activities and investing activities increased to $754 million in 1HY19, from $351.0 million in FY17 which including a $393 million net cash distribution from Australia Pacific LNG. The underlying ROCE of the company increased to 8.6% in 1H FY19 from 6.7% in 1H FY18.

EBITDA expectation of $1.5 to $1.6 billion going forward: The company has unchanged energy markets guidance with the underlying EBITDA expected to be within a range of $1.5 to $1.6 billion. As a result of price relief initiatives coupled with environmental certificate trading gains not repeated and the continued impacts of retail competition and lower customer usage, the second half of FY2019 is expected to be lower compared to the same period of FY18. The accuracy of the above guidance, however, is subject to several conditions like no material change in the market conditions and regulatory and political environment not adversely impacting the normal operations. Further, the company does not expect the capex to change going forward, excluding for Australia Pacific LNG. It expects the capex to be in a range of $385 to $445 million, with an expected fully franked final dividend of 10 cents per share.

Meanwhile, the stock has generated a YTD return of 20.73% and trading close to lower level with the reasonable PE multiple of 10.98x, signifies an attractive opportunity for the investors to acquire the stock at the current juncture. By looking at its debt reduction plan and decent outlook, we, therefore, maintain our “Buy” rating on the stock at the current market price of $7.630.
 

Oil Search Limited

Improving Net Profit Y-o-Y: Oil Search Limited (ASX: OSH) has been the largest oil player operating in Papua New Guinea (PNG) since 1929. The company has placed itself well as a long-term, low-cost oil and LNG producer. It also acquired oil interests in the Alaska North Slope in the United States to balance the gas. The group has recently reported FY18 results where total revenue grew by 6% to US$1,535.8 Mn against prior year. It was mainly driven by stronger oil and gas prices incurred during the same period.The higher oil and gas prices helped OSH achieve an average realised oil and condensate price of US$70.65 per barrel. This reflected an increase of 27% as compared to the prior year. Further, the average realised LNG and gas price of US $10.06/ mmBtu was noted and this is 31% higher than FY17. Further, NPAT reached US$341.2 Mn in FY18, signifies a 13% growth over the prior year. Operating cash flow increased to US$854.6 million in FY18 compared to US$843.6 million, an increase of 1.0% supported by higher oil and LNG prices. At the end of the year, the company had US$1.5 billion in liquidity, comprising of US$601 million in cash and US$900 million in undrawn credit facilities. Based on decent performance, the Board of Directors declared an unfranked final dividend of 8.5 US cents per share for its shareholders and it will payable on 28 March 2019 with the record date of 6 March 2019. This summarized a total dividend payment of 10.5 US cents per share for the full year, representing a dividend pay-out ratio of 47% and 11% higher than the prior year. On reserves and resources front, the proved and probable oil reserves of the company and 2C (Contingent) oil resources rose 102% to 253.5 million barrels (mmbbl) in FY18. While, total 2P gas reserves and 2C contingent gas resources grew by 6% to 6,742.2 billion cubic feet (bcf). The strong resources position provides the platform for the growth projects of the company in both PNG and Alaska.  

2018 Full Year Results (Source: Company Reports)

What to expect going forward: The outlook of the company includes improving the focus on personal and process safety, reducing environmental incidents and targeting improvements in all metrics, and enhancing stakeholder management in PNG and Alaska, through ongoing communication and collaboration with key stakeholders. It also includes activities on oil optimisation within the operated fields of the company, to shift the decline rate from the mature fields.

The stock however generated significant YTD return of 20.61% and trading slightly toward 52-week higher level of $9.265. By looking at its strong balance sheet and liquidity position along with an expectation of higher production in FY19 with lower unit production cost to be around 15-20% as compared to FY18, we reiterate our “Buy” recommendation on the stock at the current market price of $8.370.
 

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.