2 Oil Stocks - OSH And ORG

  • Apr 03, 2019 AEDT
  • Team Kalkine
2 Oil Stocks - OSH And ORG

Oil Search Limited (ASX: OSH)

Oil Search Limited (ASX: OSH) announced that the PNG LNG Project co-venturers (where OSH holds 29% stake) has entered into a mid-term LNG sale and purchase agreement (SPA) with Unipec to supply ~0.45 million tonnes of LNG per annum (MTPA). The agreement will be for four years starting from April 2019.

Unipec (Unipec Singapore Pte Ltd) Sinopec’s wholly-owned subsidiary, is PNG LNG’s original long-term customer. This agreement is in-line with PetroChina and BP’s signing of last years’ SPA, totalling 0.9 MTPA over 2018 to 2023. The company has a long-term partnership with JERA, Osaka Gas, Sinopec and CPC. Combined contract values from the projects with these companies stand at ~7.9 MTPA.

Financial Performance: Revenue for FY18 came in at US$1,535.8 million as compared to US$1,446 Mn in FY17, posting a growth of 6%. PAT recorded strong growth at 13% to US$341.2 million in FY18. Higher global energy prices in 2018 benefited the company and offset the drop in sales volume (17%) due to the earthquake. Production costs were up to US$11.52 per boe in FY18 against US$8.67 per boe. OSH generated a healthy cash flow of US $854.6 million in FY18 (up, 1%, Y-o-Y) due to strong realised oil and LNG prices.


FY18 Financial Performance, (Source: Company Reports)

Going forward, OSH will complete formalities with PNG Government and commercial agreement with partners to enter FEED (Front End and Engineering Design). OSH will start initial works for the Papua LNG upstream development. Global LNG demand is expected to grow at 4.5% annually over to 2030. This strong demand growth along with near-term expiry of contracts from Japan, South Korea and Taiwan by mid-2020, has led to the requirement of LNG capacity addition of 120 MTPA by 2030.

Looking at the key ratios and comparing with the industry median, EBITDA margins in FY18 for OSH at 68.1% is well above the industry median of 37.4%. On the same line, net profit margins for OSH at 22.2% in FY18 were quite impressive as compared to the industry median of 13.9%.

Total dividend paid in FY18 was 10.5 US cents/share, which was in-line with the company’s policy to pay-out in the range of 35-50% of NPAT. At the time of writing (3 April 2019, AEST 03:23 PM), the stock of the company is trading at a price of $8.055 with the market capitalisation of around $12.28 Bn and PE of 25.41x. The share price of OSH has appreciated 13.84% in the last one year.

Origin Energy Limited (ASX: ORG)

Origin Energy Limited (ASX: ORG) has agreed upon to sell its Ironbark project to Australia Pacific LNG (APLNG) for sales proceed of $231 million. Ironbark comprises 129 PJ of 2P reserves and 192 PJ of 3P reserves. The sale agreement will enhance the value for ORG and add value to APLNG from the asset by utilising its present gas and water processing infrastructure.

ORG, to expand and strengthen its centralised energy services business, has agreed to acquire OC Energy for the consideration of $58 million, an upfront payment of $33 million and deferred payments of $25 million. Through this, 55,000 serviced hot water and embedded electricity network customers will be added to ORG.

1H FY19 Financial Performance: Underlying EBITDA for 1H FY19 came in at $ 1,727 million as compared to $ 1,435 million in 1H FY18, posting a growth of 20%. This strong growth was largely contributed by Integrated Gas business segment which saw a 43% growth in EBITDA at $900 million in FY19. ORG has announced a fully franked interim dividend of 10 cents/sh which was paid on March 29, 2019.

Management Guidance: Management guides for Energy Markets’ underlying EBITDA in the range of $1.5 billion to $ 1.6 billion for FY19. The second half of FY19 is likely to be lower due to price relief initiatives of $60 million, non-repeated environmental certificate trading gains of $ 30 million. APLNG FY19 production to be in the range of 665-685 PJ with no change in drilling at 250-300 operated wells.

At the time of writing (3 April 2019, AEST 03:55 PM), the stock of the company is trading at a price of $7.19 with the market capitalisation of around $12.58 Bn and a dividend yield of 1.4%.


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