The announcement in April that production of LNG from the PNG LNG Project had begun ahead of schedule was great news for shareholders in Oil Search Ltd (ASX: OSH) and marks a milestone for the company. The news has since sent the share price up to a new, all-time high of $9.20.
The future prospects for Oil Search appear favourable and there are a number of reasons to consider adding the stock as a core long-term portfolio holding. Here are three reasons:
- Like fellow LNG producers Origin Energy Limited (ASX: ORG) and Santos Limited (ASX: STO), Oil Search is expected to reap big rewards from its investment in developing its LNG project. PNG LNG should reach full production capacity by 2015, and according to company guidance the first full year will see Oil Search's production quadruple and add over US$1.3 billion to its cash flows. This steady cash flow which is forecast to last over 20 years will allow the company to fund both growth opportunities and pay materially higher dividends.
- Oil Search has proven success as an explorer and at developing projects in difficult terrain – including the PNG highlands where the company has a large footprint of development opportunities which could see the firm invest in a further three LNG trains by the end of the decade. The company is also appraising a recent oil discovery in Kurdistan which is described as having a "high potential."
Dividends set to increase substantially. While Oil Search's board will no doubt be careful to continue to reinvest in boosting oil and gas reserves to offset the natural decline from its PNG oil fields, the four cent per share dividend – which has been a constant over the past five years – is set to get a major boost now that LNG production is underway.
