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Oil Search Ltd OSH

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Morningstar’s Analysis

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No-Moat Oil Search Delivers Robust First-Half Cash Flows; No Change to Long-Term Outlook

Mark Taylor Senior Equity Analyst

Analyst Note

| Mark Taylor |

We make no change to our merger fair value estimate of AUD 6.10 for no-moat Oil Search or to our AUD 5.50 intrinsic assessment of the stand-alone entity. The PNG oil and gas producer reported first-half 2021 underlying net profit after tax, up 460% to USD 139 million, ahead of our USD 95 million expectations though off a low base. Lower-than-expected operating costs were the driver of outperformance. We increase our 2021 EPS forecast by 18% to AUD 20 cents and our DPS forecast by 15% to USD 7.40 cents. Oil Search declared an interim USD 3.30 cent dividend, up from zero in the previous corresponding period and ahead of our USD 2.30 cent expectations. The 50% payout ratio was as expected but on the higher earnings.

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Company Profile

Business Description

Oil Search was founded in 1929 and operates all of Papua New Guinea's oilfields. The PNG government holds a 10% interest. Oil Search had successfully run PNG oilfields since assuming operatorship from ExxonMobil in 2003. However, the tyranny of distance saw the large and high-quality gas fields largely stranded until 2014. The PNG LNG project is the first step to monetise those vast gas resources, again under the direction of ExxonMobil. First-stage construction is complete, with potential for expansion from two trains to five.

Ground Floor, Harbourside East Building, Stanley Esplanade, PO Box 842
Port Moresby, NCD 121, Papua New Guinea
T +675 3225599
Sector Energy
Industry Oil & Gas E&P
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 1,243