4 reasons why Oil Search Limited could be a takeover target

When great things happen, people take notice. Companies are just the same. This month, Oil Search Limited (ASX: OSH) announced its oil and gas production base is projected to rise dramatically as the PNG LNG project begins shipping LNG to Asia.

The step-change increase in revenue and potential earnings will drive the stock along its current upward trend. It has also attracted attention from other energy producers, one of which is Woodside Petroleum Limited (ASX: WPL).

Prompt action by potential suitors may secure a better price for Oil Search if a takeover or merger happens before the company’s production and earnings swell. Investors right now have roughly the same opportunity.

Here are four reasons why Oil Search may be a takeover target and Woodside could be starting to move.

1) Oil production surge

The first train, or processing plant, of the PNG LNG project is already loading up its first LNG shipment and a second train should be operational later this year. The company said its production base should rise four times once full capacity is met sometime in 2015.

2) Further mid-term expansion

The company wants to leverage the PNG LNG assets it has by developing a further two more trains. At the same time, it will use its revenue increase to invest in adjacent permit areas to maximise production. Oil Search estimates it could potentially double production from the 2015 levels within the next 5-7 years.

3) Woodside abandons Leviathan project

Woodside has decided it will not go ahead with its part of the Leviathan LNG project off the coast of Israel. Adding to that, the setback for its Browse LNG project stemming from changing the onshore development to a floating LNG processing plant means its production pipeline will be under stress in the near future.

If it were to invest in or even potentially buy out Oil Search, it could tap into that expected LNG production growth and keep its shareholders happy.

4) Informal talks with Oil Search

Woodside met with Oil Search for informal talks several times recently. Although nothing material was announced, it does show an interest and a will to see what could be done to align the two energy producers. Woodside, a $33 billion company, could help with development and further expansion.

Great increases in production will attract suitors and Woodside may be only one of them. If one company lobs in a takeover offer, it could spur on other bidders once Oil Search is in play.

Oil Search shareholders should hold onto their shares. Higher production is on the way and a potential takeover or merger offer will be icing on the cake.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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