November 24, 2014
Oil Search Ltd.
Gas Consolidation: Mk2
The growth opportunity from multiple LNG train
expansions is well known, in our view, but there are
significant commercial, geological and
socio-political challenges to be met. OSH has
successfully faced these before, and for this
reason, we back the long-term growth objective to
be delivered.
OSH growth objective is to approximately double its
production by the early 2020’s,
by adding up to three
more LNG trains. We think this objective is well
understood, following release of the “Strategic review”
on October 23, and recent PNG operational tours.
The first of these, an Exxon-operated third train, is
highly likely, in our view,
but is taking longer to pull
together, with the key variable being proving sufficient
gas reserves within the existing JV production licenses,
plus the undeveloped P’nyang. OSH targets an FID
decision late 2016, in which case we think production
would not be before 2020. This expansion is now
referred to as the “North Western LNG opportunity”.
An additional two LNG trains are postulated from
the Gulf region (“Gulf LNG”),
specifically in and
around the IOC-operated PRL15 (aka “Elk/Antelope”)
and surrounding licenses. This project is less mature
and requires additional exploration success, resolution
of ownership, clarity on the project size and scope, and
degree of integration with existing Exxon-operated LNG
infrastructure. In our experience, these issues may take
years to resolve, and for this reason, we see this
expansion as not occurring before 2022.
We retain an Overweight rating, and our price target is
unchanged at A$9.70
PDF attached