Oil Search
About the author:
- Author name:
- By Adrian Prendergast
- Job title:
- Senior Analyst
- Date posted:
- 21 October 2015, 11:33 AM
- Sectors Covered:
- Mining, Energy
PNG LNG continues to go from strength to strength for Oil Search (OSH), with average production of 7.4mtpa during Q3 (Morgans estimate: 7.3mtpa). This was comfortably above its 6.9mtpa nameplate capacity with the JV confident of at least 7.3mtpa being maintained heading into 2016. Total production for Q3 came in at 7.42mmboe (vs Morgans 7.2mmboe), while sales volumes were in-line at 7.22mmboe.
Revenue for Q3 of US$379m was as expected (Morgans estimate: $US377m). Production guidance for 2015 remained unchanged at 27-29mmboe (Morgans estimate: 28.3mmboe).
Muruk potential
OSH is getting set for another catalyst heavy year in 2016, as it stays active with its large growth portfolio. The company, along with its partners, is planning on drilling close to a dozen exploration and appraisal wells consisting of a mix of prospects.
Perhaps the most exciting of these is planned exploration of Muruk, which is targeting a "multi-Tcf (trillion cubic feet)" discovery on-trend from the massive Hides field (that supplies gas to PNG LNG). Planned drilling of Muruk-1 has been brought forward to early 2016.
Papua marching ahead
Antelope-4 ST1 continues, with drilling hitting the top of the reservoir 32 metres above where it was expected. While early signs are encouraging, we await the final results once drilled to depth, which will allow the JV to assess the thickness and quality of the carbonate reservoir. The Total-led JV is then planning on testing the pressure communication between Antelope-1, -4 and -5 to test if the 2.6 Tcf resource is held within a single structure. Antelope-6 will then spud in Q4 2015.
Interestingly, OSH commented that there was potential for an additional appraisal well at Antelope in 2016.
Commodity/FX forecast changes
We have further trimmed our oil/LNG price and FX forecasts, leading to EPS forecast cuts for FY15-FY17 of 6%/15%/3% respectively. As a result of the changes, we have lowered our valuation-derived target price.
Investment view
Oil Search offers a combination of high quality earnings and attractive growth profile. The key risks remain - unanticipated oil price weakness and exploration/appraisal risk. We maintain our Add recommendation.
More information
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