Here’s why Oil Search Limited is the best energy stock to buy

Oil Search Limited (ASX:OSH) is about to score a big US$800 million+ payday from its PNG LNG project.

| More on:
a woman

Energy stocks jolted up over the past week with world crude oil prices finding at least a temporary bottom. After six months steadily sinking to multi-year lows, Brent and WTI crude oil prices, the market standards for international petroleum pricing, made a temporary bottom at around US$50 and US$45 a barrel, respectively.

Shares in oil juniors Senex Energy Ltd (ASX: SXY), Beach Energy Ltd (ASX: BPT) and Drillsearch Energy Limited (ASX: DLS) have all rocketed up more than 20% in the past week. These three companies predominantly operate in the Cooper Basin region, where their gas can be sent to Queensland for LNG processing and export at the three new LNG projects all scheduled to be operating in 2015.

Oil and natural gas stocks took a tumble from June 2014, but when Brent crude found a bottom in late January, investors assumed a floor is in place and rushed back in to pick up the beaten-down stocks.

Brent crude price rally

As a long-term investor, I wouldn’t suggest that tactic since the recent rally could be a “dead cat bounce”.brent crude 6-mnth chart The issue that caused oil to plummet was oversupply, yet production hasn’t tapered off in a material way to date.

The law of supply and demand will reset the price, but traders who abandoned oil on the way down are probably hoping to make back their money by getting in early. Trying to get revenge or make your money back from the market is a good way to lose even more money.

Source: crude oil Brent

One energy stock more attractive

However, the one stock that I would be watching is Oil Search Limited (ASX: OSH). It is a joint partner in the massive PNG LNG project in Papua New Guinea. It also has recovered from $7 a share to $8.25, or about 18% up. It has a bigger long-term story than the other stocks above.

After the PNG LNG project began shipping LNG to Asian customers around mid-2014, the project partners will soon be getting their first allotment of revenue funds since the project development was declared “complete”. Oil Search will be looking to receive over US$800 million ($1.03 billion), which is more than its total $856.4 million revenue in financial year 2013.

PNG LNG’s sales and future

The project’s LNG is already 100% under sales contract with set prices, so its revenues are steady in coming years. Oil Search is trading at 20 times next year’s forecast earnings. The stock yields 1.1% unfranked, but dividends are forecast to rise an average annual 87% over the next two years.

On top of that, the PNG LNG project may be expandable in the next 5-7 years with one or two more processing plants. That would push production and potential earnings up even further. That’s why Oil Search would be my pick of these four energy stocks.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »