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Oil Search Limited (ASX:OSH) shares slide lower after half-year profit falls 39%

Oil stocks

The Oil Search Limited (ASX: OSH) share price has taken a tumble today after the release of the energy producer’s half-year results.

At the time of writing Oil Search’s shares are down 1.5% to $9.09.

Here is a quick summary of how it performed in the first half in comparison to the prior corresponding period:

  • Total production fell 31% to 10.24 mmboe.
  • Total sales fell 31% to 9.77 mmboe.
  • Average realised oil and condensate price rose 34% to US$71.45 a barrel.
  • Average realised LNG and gas price up 18% to US$9.02 per mmBtu.
  • Total revenue down 18% to US$557.8 million.
  • Net profit after tax tumbled 39% to US$79.2 million.
  • Operating cash flow down 49% to US$215.2 million.
  • Interim dividend of 2 U.S. cents per share, down from 4 U.S. cents.

The cause of Oil Search’s disappointing half-year result was the Papua New Guinea Highlands earthquake in February which disrupted the company’s operations.

This earthquake resulted in a 31% reduction in production and sales volumes, due to a temporary shut-down of both Oil Search operated production and the PNG LNG Project. It also led to a 14% increase in production costs, largely reflecting remediation and other costs associated with the earthquake, net of insurance recoveries, and the bringing forward of maintenance programmes during the earthquake shut-down period.

Fortunately, things would have been far worse had the company not benefited from stronger global oil and gas prices, a 30% reduction in depreciation and amortisation expense due to lower production, and a 51% reduction in exploration expense. The latter reflects the write-off of two exploration wells in the prior corresponding period.

One positive, though, is that management has upgraded its full year production guidance on the back of a record performance achieved by the PNG LNG Project following the earthquake.

Management now expects full year production in the range of 24 to 26 mmboe, with unit production costs expected to narrow to between US$11 and US$13 per barrel of oil equivalent. This compares to first half unit costs of US$14.04 per barrel of oil equivalent.

Should you invest?

It looks as though Oil Search is over the worst now and set for a strong second half and FY 2019. This could make it worth buying on this weakness if you’re interested in gaining exposure to rising oil prices. Alternatively, you could consider Beach Energy Ltd (ASX: BPT) or even Cooper Energy Ltd (ASX: COE).

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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