Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH) and Santos Ltd (ASX: STO) are Australia's premier independent oil and gas companies.
Thanks to rising production and a bright upside for the commodities which they mine, all have been thrust into the investment spotlight and command lofty share prices. Let's take a quick look to see who is, and who isn't, most likely to grow in the long-term.
Woodside is the biggest of the three resources companies with a market capitalisation of $34 billion and 2P reserves of 1,437 mmboe. In 2013, sales revenue was lower because of a higher proportion of gas in the product mix, which resulted in a lower average realised price. In addition, oil production costs rose significantly because of maintenance on the Vincent floating storage unit. However in 2014, I'm expecting revenue and costs to return to normal growth.
Woodside's recent withdrawal from the giant Leviathan field off the coast of Israel hasn't had much of an effect on the company's stock, but was understandable given the regulatory risks involved and a failure to reach a viable agreement with its partners. Recently, I noted Woodside appeared to be trading around fair value and the withdrawal from Leviathan was what many were expecting. As such I still believe Woodside trades around fair value.
Santos is one of my favourite Australian oil and gas companies. Since 1954 Santos has been producing and exporting Australian oil and gas and currently has operations in all mainland states except the Northern Territory. In 2013, Santos' 2P reserves totalled 1,368 mmboe. Based on its 2013 production rate of 51 mmboe per year, Santos currently holds around 27 years of production in reserves.
However Santos has two major projects coming online in the next two years which will increase production, revenues, cash flow and profits in a big way. Chairman Ken Borda recently said cash flow will more than double in the next two years as GLNG and PNG LNG come online. Trading on a P/E ratio of 27.7, Santos' shares appear fair value given analysts' forecasts of 99.9 cents per share earnings in 2015. However for long-term investors I believe it could hold value in the form of both capital gains and dividends, and any significant pullback in price could warrant a buy.
One of Santos' partners on the PNG LNG project is Oil Search. Like Santos, Oil Search's shareholders are banking on significant growth in production over the next few years. Oil Search was incorporated in 1929 and is the operator of all producing oil fields in PNG. At 31 December 2013, the company's 2P reserves were 94.3 mmbbls of oil and 2,370.7 bcf of gas.
With shares trading around 55 times trailing earnings, Oil Search is fully valued and could not be called a bargain.
3 better alternatives
Although investors could find long-term value in Santos shares I believe both Woodside and Oil Search are fully valued at current prices. However with thousands of resources companies listed on the ASX we have more than these three to choose from!
