Oil Search Limited

Progressive developments at Papua New Guinea & Alaska: Oil Search Limited (ASX: OSH) is the oil & gas exploration and development company headquartered in Port Moresby, Papua New Guinea. The company recently announced a change in voting power of its substantial holder FIL Limited and the entities, from 6.04% to 5.01%, which was done on April 5, 2019. In another update, it has entered into an agreement with the Independent State of Papua New Guinea along with Total SA, ExxonMobil, defining the fiscal framework for the Papua LNG Project. This will allow all Papua LNG project parties to proceed with confidence into Front End Engineering and Design related activities, commencing with contractor selection and engineering contracting.

On April 4, 2019, Oil Search presented results on its Muruk 2, Pikka B/Pikka B ST1& Pikka C/Pikka C ST1wells for March 2019.At well Muruk 2, a drill stem testhas confirmed the presence of gas in the Toro A reservoir. Pressure data indicates that the gas is on the same pressure gradient as that in Muruk 1 ST3, confirming that Muruk 2 is an extension of the Muruk field.

At well Pikka B/Pikka B ST1, all coring, wireline and pressure data acquisition was completed and on 5 March, a well test commenced in the 71-degree angle wellbore over a single stage stimulation in the Nanushuk reservoir.

At well Pikka C/Pikka C ST1, during March, logging-while-drilling data was successfully acquired over Pikka C ST1. A flow test programme began on March 14, which included testing of six stimulation stages within the 3,800-foot-long horizontal section.Further, demobilisation of the drilling rig and support equipment is underway and is expected to be completed by mid-April.

In its annual result report, total net production reduced by ~17% to 25.21 mmboe in FY18, which was due tothe devastating PNG Highlands earthquake in late February 2018 which caused a complete production shut-in across both PNG LNG and operated facilities.

Despite lower production, the revenue was reported at US$1,535.8 Mn in FY18, up by 6% as compared to FY17, which was predominantly driven by stronger average realised oil and gas prices during 2018.


FY18 Financial Metrics (Source: Company Reports)

What to expect from the company:It is expected that the company’s high quality growthprojects will double its annual production by the middle of the next decade.The company is expected to continue to deliver gas from Oil Search-operated fields to the PNG LNG Project. Additionally, the company would continue to focus on development and enhanced engagement of staff.

Stock Recommendation: Oil Search’s share generated positive YTD return of 14.84%. Its gross margin, EBITDA margin, and net margin for FY18 stood at 54.5%, 68.1%, and 22.2% better than the industry median of 44.3%, 37.4%, and 13.9% respectively, depicting decent financials in FY18.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $8.060 (down 1.104% on 10 April 2019).
 

Origin Energy Limited

Decent Bottom Line Growth in 1HFY19: One of Australia’s largest energy retailer, Origin Energy Limited (ASX: ORG) has engagement in exploration and generation of various energy sources.

The company recently announced issuance of 1,769,296 number of new ordinary shares at $7.3395 per share, for the purpose of dividend reinvestment plan. In a previous announcement, ORG released update on its director’s interest where Greg Randall Lalicker holds 100,000 fully paid ordinary shares.

In its half yearly result, it reported underlying EBITDA of $1,727 Mn and underlying profit of $592 Mn, which was due to higher oil linked revenues in integrated Gas and reduction in financing costs from lower interest rate and lower debt.Based on the 1HFY19 performance, the Board of Directors declared a fully franked interim dividend of 10 cents per share.
 

H1FY19 Financial Metrics (Source: Company Reports)

What to expect from the company: The company expects no change in its energy market guidance with underlying EBITDA expected to be in the range of $1.5 Bn to $1.6 Bn.Its APLNG’s production is expected to be in range of 665 to 685 PJ and 250 to 300 operated wells drilled. With respect to APLNG, it would be targeting an operating breakeven of US$23 to 26/boe and a distribution breakeven of US$39 to 42/boe. Excluding APLNG CapEx and OC Energy acquisition, the company’s CapEx is expected to be between $385-445 million.

Stock Recommendation: Origin Energy’s share generated positive YTD return of 15.66% and is trading close to 52-week lower level of $6.030, proffering a decent opportunity for accumulation. Its RoE improved from 3.6% in H2FY18 to 6.5% in H1FY19, implying better values to shareholders. Its D/E ratio stood at 0.53x which is below the standard benchmark of 1x, which implies better debt servicing by the company.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $7.230 (down 1.094% on 10 April 2019).
 

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