OSH 4.15% $3.00 oil search limited

macquarie report recommendation for osh

  1. 151 Posts.
    Macquarie report:
    Tuesday, 11 January 2005
    Data as at Tuesday, 11 January 2005

    -----------------------------------------------------short-term view: Outperform
    long-term view: Neutral
    volatility index: High

    Investment Fundamentals
    -----------------------------------------------------code: OSH AU
    stock price: $1.77
    volatility index: High

    Oil Search
    Valuation increased

    Stock: OSH AU
    Volatility Index: High

    We have taken the step of including a risked value for the Nabrajah oil discovery in Yemen (Oil Search interest is 28.3%). With the company drilling the fifth well on the structure, we anticipate a declaration of commerciality.

    Yemen represents the first major foray outside Papua New Guinea (PNG) for Oil Search. While activity to date has been relatively small scale, initial impressions are positive with the Nabrajah discovery, in our opinion, a likely development candidate in 2005.

    We have completed a discounted cashflow model under the Yemen PSC terms for a 9.5mmbbl Nabrajah discovery. This adds a less than breathtaking A$0.03 per share to our Oil Search target price, largely irrelevant when compared to the A$0.68 per share upside for a PNG gas pipeline development, but nonetheless a positive start.

    We have also taken the opportunity to add recently discovered Kutubu reserves reducing the field decline rate as production benefits from recent infill drilling.

    Earnings revision

    We have revised our forecast adjusted profit as follows: 2004 +5% to A$136m, 2005 +5% to A$143m, 2006 +10% to A$146m due to increased Kutubu production forecast and use of actual December oil price.

    Valuation, target, catalyst

    Valuation: $1.69. 12-month price target: $2.22 based on a discounted cashflow methodology. Catalyst: Approval of Highlands Gas Project.

    Action and recommendation

    We retain our Outperform recommendation for Oil Search with the stock trading at a 25% discount to our target price of A$2.22 per share.
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