Here’s how Oil Search performed in the first half of FY21…
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The Oil Search Ltd (ASX: OSH) share price shot up 3.51% in early trading Tuesday. This follows the oil and gas company releasing its first-half results for FY21 before the market open.
At the time of writing, Oil Search shares are residing at $3.83. All eyes will be on the $7.7 billion Papua New Guinean oil producer as the market comes to life today. In the past month, the Oil Search share price has struggled as it moves towards a merger with Santos Ltd (ASX: STO).
Oil Search share price in focus after swinging back into profit
Below are the highlights of the Oil Search’s results:
Revenue up 7% to US$668 million, benefiting from oil price recovery
Total production of 13.5 million barrels of oil equivalent in the first half
Earnings before interest, tax, depreciation and amortisation and exploration (EBITDAX) of US$488.8 million, down 8% on the prior corresponding period
Net profit after tax of US$139 million, swinging from a loss of US$266 million in 1H FY20
Interim dividend of US 3.3 cents per share, exceeding analyst expectations of 1.8 cents.
Basic earnings per share (EPS) of US 6.7 cents
What happened in 1H FY21 for Oil Search
The Oil Search share price is in the crosshairs of investors on Tuesday after reporting its first-half results for FY21. Positively, the ASX-listed oil and gas giant exceeded the expectations of analysts at Goldman Sachs across a number of metrics.
According to the company’s release, Oil Search delivered US$668 million in sales revenue for 1H21 – representing an increase of 7% from the prior corresponding period.
This robust performance was helped along by the improving price of oil during the reporting period. Specifically, the realised price for oil and gas condensate increased 80% from the prior year. Meanwhile, realised prices for LNG and gas were down 5% compared to 1H20.
Furthermore, reductions in expenditure alleviated the company of its loss-making status. A 90% decrease in exploration costs, a 25% fall in finance costs, and a decrease in production costs meant Oil Search became profitable during the half.
The company reported a profit of US$139 million, compared to analysts’ expectations of US$107 million. This was in stark contrast to the US$266 million loss that Oil Search had made this time last year.
Although revenue and profits increased, production fell year-over-year to 13.5 million barrels of oil equivalent (mmboe). This represented an 8% reduction compared to 1H20. Similarly, sales volume dipped 2% to 13.3 mmboe.
What did management say?
Commenting on the result, Oil Search Acting Chief Executive Officer Peter Fredricson said:
Oil and LNG markets have continued to recover from the initial economic impacts of the COVID-19 pandemic led by a robust demand rebound in Asia. We have seen a significant increase in core earnings, reflecting higher realised oil prices and a sustained focus on reducing underlying costs, whilst a lower net debt position has contributed to a significant improvement in the company’s overall financial strength.
Additionally, regarding the company’s step towards net-zero carbon emissions, Mr Fredricson said:
In support of our ambition to achieve net zero carbon emissions by 2050, we have implemented a carbon abatement program and commenced programs that aim to deliver a 30% reduction in GHG intensity across our operated facilities by 2030.
What’s next for Oil Search?
Looking ahead, Oil Search suggested that strong performance is expected to carry into the second half. This will be underpinned by PNG LNG and barring major COVID-19 impacts on operations. Additionally, the full extent of the higher oil price tailwind is expected to occur in the second half due to the lagging nature of LNG pricing.
Regarding guidance, the company estimates FY21 production between 25.5 mmboe to 28.5 mmboe. On the same note, FY21 unit production costs are expected to be in the range of $10.50 to $11.50 per boe.
Oil Search share price snapshot
The Oil Search share price has performed reasonably well over the past year. As the price of oil recovered from the COVID-induced crash, so did the company’s value.
Compared to the S&P/ASX 200 Index (ASX: XJO), Oil Search delivered a return of 23.3%, versus a gain of 22.2% from the Aussie benchmark.
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Motley Fool contributor Mitchell Lawler 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.