PNG LNG drives Oil Search

INDEPENDENT analyst Stock Resource has handed down a “hold” recommendation for PNG-focused Oil Search on the back of its exposure to the PNG LNG project.
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The recommendation backs up the sentiment from JP Morgan earlier this year, labelling Oil Search as a "lower risk exposure" to Asian liquefied natural gas through its fully contracted PNG LNG project and expansion opportunities.

JP Morgan's target price for Oil Search was $A6.98 per share, inclusive of the full value of the first two trains of the PNG LNG project while taking into account 50% of the third train's expected value.

It listed the main risks to its target price being the spot oil price, progress toward the fruition of the PNG LNG project and exploration success to find enough gas to progress with the third and fourth trains at the project.

Stock Resource recommended its members continue to hold at about $6.59, labelling the PNG LNG project a "transformational project for Oil Search".

It added that it expected the market to revalue the company as key milestones at the project are met.

Australian resource analyst Fat Prophets labelled the PNG LNG project the most vital cog in the Oil Search machine back in May.

"If Oil Search didn't have a stake in one of the world's premier LNG projects, then we would have little interest in the stock at these levels," it said.

"PNG LNG will however be a company changing development for Oil Search and its valuation simply reflects that fact."

As it seeks more gas to allow for a third train, the company said during its annual general meeting it believes the Papua Gulf on PNG has the best potential for finding significant new gas accumulations.

Oil Search concluded 2D and 3D seismic over the area in 2010 and will look for farm-out opportunities this year.

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