Oil Search (OSH) Update

Oil Search (OSH) has a retained Outperform recommendation and a 12 month share price target of $6.30 from Australian shares analyst Macquarie Research.

Oil Search (OSH): Energy Sector Review

Yesterday we reviewed the Energy Sector, highlighting that there have been significant upgrades to earnings and that Oil Search (OSH) is Macquarie Research Equities (MRE) top pick in the sector. In today’s note we review the sale of a few of OSH’s assets as they continue a switch from Oil exploration to LNG production.

OSH has announced the sale of a selection of Middle East/North Africa (MENA) assets to Kuwait Energy Company (KSC) with a sale price of US200 million (plus Working Capital adjustment). This was significantly above MRE’s carrying value of US80Million. The transaction has gone through cleanly with the assets being sold as a package, avoiding the split up of the assets. MRE anticipate that the sale will add US225 million to OSH’s cash flow on completion of the deal in around mid 2008. This strengthens OSH’s already robust cash position. As would be expected with the sale of assets, MRE has downgraded EPS by 3% but OSH still has exposure to the region through opportunities in Yemen, Libya and Tunisia.

MRE retain their outperform recommendation with a 12 month price target of $6.30 representing capital upside of over 25%. This sale further reiterates OSH’s strategy of switching their core business from Oil to LNG. There are a number of decisions to be made in the next few weeks regarding delivery of LNG in 2013 which could give a strong indication to the value of the PNG LNG business.