Oil Search: Interim results 2012
Recommendation
News of political strife in Papua New Guinea (PNG) is like news of rain in London; predictable and expected. Despite the friction in parliament, Oil Search released reasonable results for the half year (it has a calendar year end). Production fell 8% to 3.3m barrels of oil equivalent (mmboe) as aging fields creaked closer to exhaustion. Despite higher oil prices lifting revenues, net profit after tax fell 6% to US$108m. From earnings per share of US$0.081, down 7%, a US$0.02 unfranked dividend was declared (ex-date 7 Sep).
Half year to 30 June | 2012 | 2011 | Change (%) |
---|---|---|---|
Production (mmboe) | 3.3 | 3.6 | -8 |
Revenue (US$m) | 398.5 | 371.1 | 7 |
NPAT (US$m) | 107.5 | 114.5 | -6 |
EPS (US cents) | 8.1 | 8.7 | -7 |
DPS (US cents) | 2 | 2 | 0 |
Franking (%) | 0 | 0 | N/A |
Higher costs were responsible for the profit fall; exploration expenses rose 56% as Oil Search continues to seek more gas onshore in PNG. In Iraq, a huge underground structure, Taza, will be tested this year too, reminding investors that there are worse places to be drilling than PNG. Until the mammoth PNG LNG project starts production, however, annual results are largely a sideshow. All eyes are on progress at the project that will boost output fourfold. Although costs are becoming an issue—inflation in PNG is rising and the local currency, the Kina, keeps appreciating—the joint venture has maintained cost estimates. That makes PNG LNG one of the few projects in the region not to experience a cost blowout.
The LNG project is now visibly taking shape in the wilds of PNG’s highlands; 407km of offshore pipelines have been laid; a 540 tonne lift successfully installed and 60% of onshore pipelines have been laid. ExxonMobil, Oil Search’s joint venture partner and project operator, is doing a fine job in difficult conditions. With the joint venture rich with drilling prospects, talk is now of project expansion. PNG has barely been explored and more gas finds are highly likely with concerted effort. With success, an expansion of PNG LNG also looms. But the first hurdle remains production in 2014, now one step closer. Oil Search's share price is up slightly since 22 Feb 12 (HOLD – $6.97). HOLD.