With the macro level scenario and geopolitical situation wherein sanctions against the Middle East state are being discussed, there seem to be some positive signs developing in the oil sector. With the possibility that ASX Energy Companies might benefit from the changing landscape, below are two stocks that we believe are good to hold -
 

Oil Search Limited

Healthy Financials: Oil Search Limited (ASX: OSH) stock rose 0.7% on March 26, 2018 as the company announced Ms Susan Cunningham and Dr Bakheet Al Katheeri to be appointed as non-executive directors of the company, effected from 26 March 2018. As per the first Climate Change Resilience Report released on 20 March 2018, the climate scenario analysis came positive for the company and indicates that the company would continue to generate positive return to shareholders under a range of decarbonisation scenarios, including 2-degree Celsius pathway.

On the financial front, OSH reported 2017 net profit after tax of $302.1 Mn which is 236% higher than reported NPAT in 2016. Sales revenue benefitted from rise in global oil and gas prices with the average realised oil and condensate price increased by 24% to US$55.68 per bbl and average realised LNG and gas price increased by 21% to US$7.67 per MMBtu. During the year, the company accounted for US$843.6 Mn in operating cash flow, an increase of 52% on YoY basis on the back of higher oil and gas prices. The company used this cash to repay US$314 Mn of PNG LNG project finance debt and fund dividends totalling of US$99 Mn while continuing to invest in high potential exploration and appraisal activities in PNG, including the Muruk and P’nyang South wells in the North-West Highlands. In February 2018, the US$400 Mn Alaska North Slope acquisition was completed, and funded from existing cash balances.

2018 is expected to be a pivotal year for the company despite the overall market volatility. The company will continue to invest in activities in PNG that promote stable operating environment and has a major focus on cost reduction and improving efficiency across the organization resulting into higher growth in years to come. We give a “Hold” recommendation on the stock at the current price of $7.19


Robust Financial Performance (Source: Company Reports)
 

Origin Energy Limited

Operational Performance Drives Earnings Growth: Origin Energy Limited (ASX: ORG) is the leading Australian integrated energy company. The stock rose by 0.335% on March 26, 2018 while statutory loss of the company was recorded at $207 Mn for the first half of the year that was driven by impairment charges after tax of $533 Mn. However, underlying EBITDA from continuing operation increased from $990 Mn in1HFY17 to $1492 Mn in 1HFY18, marking a growth of 51% YoY. Operating cash flow increased by 43% to $552 Mn in 1HFY18 from $386 Mn in 1HFY17 which was driven by earning growth in Energy Markets and Australia Pacific LNG. Energy Markets FY18 EBITDA is expected to be in the range of $1.78-$1.85 Bn (increased from $1.7-$1.8 Bn), provided that the market conditions and the regulatory environment do not materially change. This change was driven by an improvement in natural gas volumes and margins which was partially offset by increased pressure on operating cost in a highly competitive market. Capital expenditure (excluding Lattice Energy) is expected to be $360-$420 Mn. Adjusted Net Debt is expected to be below $7 billion.

Recently, the company announced to redeem 500 Euros million of Capital Securities due in 2071 that are listed on the London Stock Exchange. After this announcement, Standard & Poor’s rating Services will no longer assign intermediate 50% equity content to both the 2071 Capital Securities and to the Euro 100 million Capital Securities that are due in 2074, listed on the Luxembourg Stock Exchange.

Meanwhile, the stock has inclined by 21.77% in the past six months (as at Mar 23, 2018). We give a “Hold” recommendation on the stock at the current market price of $8.98
 

Operational Performance Drives Earnings Growth (Source: Company Reports)

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