Oil Search (ASX:OSH) share price up amid tighter production forecast

Here are the key takeouts from Oil Search’s third quarter update.

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The Oil Search Ltd (ASX: OSH) share price is lifting from the market open, currently trading 0.67% higher at $4.51.

Oil Search’s shares are on the move this morning amid the release of its quarterly update for the period ended 30 September 2021.

Here are the details out of the oil and gas producer’s camp today.

Oil Search share price lifts amid quarterly results

The company outlined its progress for the quarter, including several investment takeouts. Here are the highlights:

  • Full year production guidance narrowing from 25.5-28.5Mmboe to 26-28Mmboe
  • Forecast full year investment expenditure of US$185-$275 million, down from estimates of US$250-$350 million
  • Q3 production came in at 6.89Mmboe, a 4.6% quarter on quarter growth
  • Sales volume up 2.1% from the previous quarter with 6.84Mmboe in Q3
  • Operating revenue growth of 12% from the quarter prior at US$408.8 million
  • Maintains full year production cost per barrel-of-oil equivalent of US$10.50 to US$11.50.

What happened in the third quarter for Oil Search?

Oil Search realised a healthy quarter of sales and operating revenue growth, supported by a strong commodity base.

Operating revenue for Q3 came in 12% higher than the previous quarter at US$409 million. This was propped up by an approximate 5% jump in total production to 6.89MMboe.

The company also saw a higher LNG and gas price on its sales this quarter, with pricing coming in 16% higher to US$10.02/mmBtu.

Oil Search also reported “good progress across all major growth projects”, particularly the ramp-up of its Papua LNG project’s activities “as operator targets FEED entry in 2022”.

The company’s update also notes Oil Search’s Pikka Phase 1 FEED technical work and assurance is nearing completion.

Perhaps the most important takeout in Oil Search’s growth engine is the progress being made with the Santos Ltd (ASX: STO) merger to form an oil and gas superpower.

Both parties signed a Merger Implementation Deed in early September after a period of extensive due diligence and what seemed like a game of deal-based ping pong throughout the year.

What’s the outlook for Oil Search?

The company also narrowed its guidance range for full-year production, now seeing a range of 26-28Mmboe, down from 25.5-28.5Mmboe.

In addition, Oil Search lowered its full-year investment expenditure guidance this quarter.

This is due to limited contractor mobility into PNG as a result of COVID-19 and reduced capital budgeting on the company’s Pikka project.

It now sees full-year investment expenditure of US$185 million to US$275 million, a roughly 24% decrease from its previous guidance range of US$250 million to US$350 million.

With respect to the Santos merger, the next step will be a first court hearing in PNG after which the documents related to the scheme will be distributed to shareholders.

What did management say?

Speaking on the announcement, Oil Search acting CEO Peter Fredricson said:

Oil Search delivered another strong quarter of production, which was up 5% on the previous quarter, demonstrating the resilience of our operations and sustained commitment to the safety of our people and maintaining safe and reliable production.

Regarding the company’s outlook into the full year and beyond, Fredricson added:

Our outlook for the 2021 full year remains positive as we tighten our production guidance and maintain our operating cost guidance despite the additional costs associated with the management of the impact of COVID-19. Both LNG and oil markets remain strong, with spot LNG markets continuing to exhibit high volatility and record highs which is a supportive environment for market soundings in respect of new medium-and-longer term LNG sales contracts.

The Oil Search share price has posted a return of 53% in the past 12 months, after rallying another 21% this year to date.

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The author Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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