A PNG play with a difference

Nevertheless, the immediate short-term driver for the stock will be the finalisation and go-ahead for the massive PNG - Qld gas pipeline project, which has recently received a confidence boost. The announcement of the integration of the Hides gas reserves into the project and the appointment of AGL as the lead gas marketer are huge positives for the stock. If and when the project gets final approval, we expect Orogen to be positively re-rated.

Tough road ahead

The gas partners now have to concentrate on turning expressions of interest for gas usage into bankable contracts and have given themselves a tight time frame in which to do it. But with AGL on the scene, you can't ask for a better company to do the job. We are looking for positive news no later than the end of June, otherwise potentially significant delays in first gas deliveries may occur.

But Orogen isn't a single-project company by any means. It recently increased the equity stake in the Porgera gold mine to 20% and, despite a hiccup in the first quarter, Porgera continues to be a high-margin operation in a period of very low gold prices. This is the first acquisition outside the 'purchase option' and may signal a new direction. Under the purchase option lies and an impressive suite of development assets including:

• the Moran Oil Field (development decision expected in the second half )

• Ramu Nickel Project (which could be considered prior to a development decision, with Orogen taking on some of the pre-development/appraisal risk)

• Hides gas (either for the pipeline project or as a stand-alone gas development)

Our last review of Orogen on August 28, 1998 (Hold-$2.08) suggested the share price would weaken further but with good progress on the PNG - Qld gas pipeline project, the company has rebounded from the share price lows of the last few months and benefited from the recent short-lived resources rally. The company has a net debt-free balance sheet complemented by an excellent portfolio of production assets. A pull back in the share price will give spirited resource investors with a long-term view an opportunity to soak up stock at good value prices. BUY below $1.60.