Oil Search (OSH) Update

Submitted by Jim Thesiger on 5 June, 2008 - 13:37

Oil Search (OSH) has a $7.20 share price target and an Outperform recommendation with a suggested upside of up to 15 percent in the stock from Australian stock analyst Macquarie Research Equities.

Is It Too Late To Get Upside In Gas?

Over the past fortnight the Australian oil & gas sector has been alive with M&A activity and front page joint-venture deals. With the “land grab” firmly underway for Australian gas assets, investors have begun to look further afield at companies exposed to the booming sector. One such company Macquarie Research Equities (MRE) believe fulfils this objective is Oil Search (OSH). OSH is currently rated as MRE’s top pick in the oil & gas sector. Upside potential from OSH’s key gas assets in Papa New Guinea has recently been highlighted by competitor, Santos (STO), in a presentation to investors.

OSH recently expanded one of it Papua New Guinea (PNG) gas fields which MRE believes will soon add to the value of the company. Under the view of the superior nature of this asset, MRE feels that the market will ultimately begin to factor in the assumption of further expansions. The infrastructure spend already being made to carry out the first expansion, allows capacity for further development and at least one additional train. With the market not factoring this into current valuations, the improved efficiencies this will create will add up to 15% to initial capacity.

MRE feels the project is progressing the development of a world class, liquids rich gas resource which is providing the best in class returns for any project of this nature. In combination with this investment and the remainder of the business continuing to outperform, MRE believes at this stage there is still a further 15% upside in the stock with a target of $7.20 vs yesterdays closing price of $6.30. Though it must be noted, if the further expansions occur there is the strong possibility the stock may have to 50- 65% upside at a range of $9.85 to $10.30.

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