The Oil Search Limited (ASX: OSH) share price hasn't been a shining star this year, to say the least. Like most energy shares, the Oil Search share price was hit particularly hard by the wider COVID-19 panic selling that gripped the markets earlier this year.
Already feeling pressure from falling oil and gas prices, Oil Search shares plummeted 76% from 15 January through to 23 March. The Oil Search share price has, however, rebounded strongly since then, in fact gaining 76% from its March low.
But it takes a lot more than a 76% gain to offset a 76% loss, which leaves Oil Search's share price down 58% from its 15 January highs and down 54% year to date.
For comparison, the S&P/ASX 200 Index (ASX: XJO) is down 11% over that same time.
What does Oil Search do?
Oil Search was established in Papua New Guinea in 1929 and began trading on the ASX in 1999. The company operates all of PNG's oil fields. It owns 29% of the ExxonMobil-operated PNG LNG Project, a major exporter to Asian markets. The company also holds interests in the Elk-Antelope and P'nyang gas fields.
Oil Search counts some of the most successful oil and gas operators in the world as its joint venture partners. With PNG's world class fossil fuel assets, the company is well-positioned to expand its LNG capacity.
Why could the Oil Search share price be in for big gains?
The Oil Search share price has been pushed sharply lower due to two related factors. First, the world has been producing oil, and to a lesser extent LNG, at a record pace. Second, the demand side for oil and gas collapsed following the coronavirus global lockdowns, which saw air and passenger vehicle travel virtually grind to a halt.
Now there's still no shortage of oil and LNG waiting to be pumped from the earth. But the demand side is almost certain to rocket higher once the virus is eradicated or effectively controlled.
JPMorgan Chase & Co, for one, has been turning its attention towards shares in the beaten down energy sector. In a note on 26 September, which whilst nearly one year ago is still highly relevant, JP Morgan's Dubvrako Lakos-Bujas wrote (as quoted by Bloomberg):
Investor complacency toward energy is perplexing. The market should assign a structural premium to the equity-oil complex with the Middle East currently a geopolitical tinderbox…
Favorable technicals, improving fundamentals with stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap sector.
In its interim result for the half year to 30 June 2020, released on 25 August, Oil Search offered production guidance of 27.5 million to 29.5 million barrels of oil in 2020. This follows on it pumping 14.7 million barrels of oil in the first half of the year, its best production figure since 2018.
With that said, the Oil Search share price isn't one that's likely to rocket higher in the short term. But if you have an investment horizon of 2-3 years, I think today's price of $3.22 per share could present a great bargain.
