Oil Search Limited

OSH Details

Advancement of Papua LNG Project: Oil Search Limited (ASX: OSH) is actively engaged in the production and exploration of oil and gas. The company is present in PNG Business Unit (PNG BU), Exploration and Other. OSH has announced its recent development at its Papua LNG project. The Papua LNG JV has got a five-year extension of its Petroleum Retention License (PRL 15) to proceed the project to the Final Investment Decision (FID). Moreover, the independent state of New Papua Guinea and Papua LNG project has signed a fiscal stability agreement recently for the development of the project.

Dividend Declaration: The company has declared a dividend of $0.00647836 per share. The ex-date for the dividend was on 2 March 2021 and the payment date of dividend was on 25 March 2021.

Change in Director’s Interest: As per the company report, Susan Cunningham, director of OSH has acquired 6,630 shares for a total consideration of $28,376.40. The change in Director’s interest took place on 22 March 2021.

FY20 Financial Highlights: The company has registered a decline in its revenue to US$1,074.2mn in FY20 as compared with US$1,584.8mn in FY19, on the back of lower prices. Due to lower price realisation for hydrocarbon during FY20, OSH has registered a loss of US$320.7mn in FY20. The company was able to reduce its net debt to US$2,376.2mn in FY20 as compared with US$2,983.2mn in FY19.

Key Financials (Source: Company Reports)

Outlook: As per the company report, OSH is expecting to reduce more than 30% Green House Gases (GHG) intensity by year 2030. The company has plans to deliver on its projects in FY21. Pikka project has received an approval for FEED entry and targeting Final Investment Decision (FID) in Q4FY21. Moreover, OSH is expecting to start its Biomass project after receiving due approvals from government and FID. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, OSH has decreased by ~3.30% and increased by ~10.51% in the last three months. The current market capitalisation of OSH stands at ~$8.51bn as of 1 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.350-~$4.620. On the technical analysis front, the stock has a support level of ~$3.87 and a resistance of ~$4.32. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering the company paying out dividends to its shareholders and reducing its debt in FY20 over FY19. For this purpose, we have taken peers Boss Energy Ltd (ASX: BOE), Karoon Energy Ltd (ASX: KAR), Peninsula Energy Ltd (ASX: PEN), to name a few. OSH has received a five-year extension PRL for its Papua LNG, and considering the dividend payment to its shareholders, decent outlook, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $4.10 as on 1 April 2021.

OSH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Karoon Energy Ltd

KAR Details

Yielding Profits from Bauna Oil Field Acquisition: Karoon Energy Ltd (ASX: KAR) is engaged in oil and gas exploration activities and mainly invests in hydrocarbon exploration and evaluation in Australia, Brazil, and Peru. The company has completed 100% acquisition of Bauna oil field from Petrobras in Brazil. The Bauna assets have delivered a gross profit of $9.3mn by producing oil from 7 November 2020 to 31 December 2020. KAR acquired Bauna oil field on 6 November 2020.

Update on Brazil Business Unit: The company has set up a Brazil business unit considering the importance of Bauna asset in Brazil. The company is also considering creating a team of executives for Brazil Business Unit, who will directly report to the CEO and the Managing Director.

1HFY21 Financial Highlights: The company has significantly reduced its losses to $2.39mn in 1HFY21 as compared with a loss of $24.63mn in the previous corresponding period. The company has posted a revenue of $32.91mn resulting from 503.1 kbbls of oil shipped from Bauna oil field on 9 December 2020. The company has $132.91mn of cash and cash equivalents as on 31 December 2020 as compared with $431.90mn as on 30 June 2019. The net assets were declined to $484.89mn as on 31 December 2020 as compared with $$523.19mn as on 30 June 2020.

Cash Position (Source: Company Reports)

Outlook: As per the company’s guidance for FY21, the oil production is expected in a range of 3.0-3.4 MMbbls with an operating expenditure to remain in a range of US$23/bbl to US$27/bbl. The investment expenditure for interventions and Patola is expected to be in a range of US$34-US$38mn and an investment expenditure of US$7-US$8mn for exploration and evaluation. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, KAR has decreased by ~6.52% and increased by ~1.41% in the last three months. The current market capitalisation of KAR stands at ~$597.93mn as on 1 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.450-~$1.210. On the technical analysis front, the stock has a support level of ~$1.05 and a resistance of ~$1.11. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering that company has started generating profits from its recent acquisition of Bauna assets in Brazil and expectation of higher revenues from Bauna oil fields, going forward. For this purpose, we have taken peers Cooper Energy Ltd (ASX: COE), Woodside Petroleum Ltd (ASX: WPL), Senex Energy Ltd (ASX: SXY). KAR has significantly reduced its losses in FY20 and considering the yielding profits from Bauna assets, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.075, down by 0.463% as on 1 April 2021.

KAR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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