OSH 1.15% $2.57 oil search limited

credit suisse 12 month price target

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    Credit Suisse 12 month price target on OSH (released 16 October 2008, only available on its website yesterday)

    We set our $7.00 target price on Oil Search based on a reserves value re-rating of the stock over the next 12 months as the company delivers/ de-risks its PNG LNG project through the 2008 FEED process. Oil prices, the critical sector earnings driver, is determined by our Credit Suisse Global Energy team on a quarterly basis taking into consideration global demand-supply pressures.

    Our oil price forecast is roughly US$75.00 for 2009, rising up to US$120.00 in 2012, before declining to a LT price of US$100 in CY2015. The components to our DCF include a discount rate of 11%. Using this DCF valuation, we price Oil Search at $5.87/share.

    The critical risks associated with our $7.00 OSH target price relate to commodity price assumptions and delivery issues related to growth projects, predominantly timing and capex estimates. On a lesser level, the sector is experiencing significant upside pressure to operating costs, however, somewhat counterbalanced by the upside risk to production numbers and potential new project sanctions.

    The critical risk for OSH is commercialization of the PNG gas resources, a large driver of the valuation and still awaiting a decision on the preferred project option, which we see as being a positive catalyst for the stock. However, a project sanction would be necessary by mid 2009 - particularly if a 2013 start-up is to be made.


    P.S. The previous Credit Suisse 12 month price target was released 19 August 2008. It previously had a $8.50 target price. The components of its previous DCF included a beta of 1.0, discount rate of 12%, risk premium of 6.4% and risk-free rate of 5.6%. Using that DCF, gave a valuation of $6.69/share.

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