Over the next year, a number of LNG projects will begin producing for the export market, so the market anticipation of new income streams and higher profits will have some oil and gas producers rising strongly in share price.
Investors should know about the different projects and what they may be able to offer as long-term investments. The export markets are hungry for new sources of energy and will stay that way for quite a long time because of Asia's large populations and economic growth.
Oil and gas producer Origin Energy Limited (ASX: ORG) is involved in power generation and energy retailing, so its coverage from resource development to end-user is complete. It has made a steady climb in share price, almost 50% up since November 2012.
Its Australia Pacific LNG (APLNG) project is expected to deliver its first production of liquefied natural gas in mid-2015. It is developing coal seam gas resources in Queensland and SA for exporting to international markets where currently gas spot prices and demand in Asia is high.
For the last five years, net underlying profit has risen at a steady pace. The company estimates a step-change in earnings and cash flow in FY2016 when the project is delivering LNG as per its long-term contracts.
The stock's PE is 21.8, about in the middle of its historic PE range. The dividend yield is 3.4%. The interim dividend was 25 cents per share unfranked.
Oil Search Limited (ASX: OSH), the oil and gas developer and producer, has a 29% interest in the PNG LNG project. First exports should be achieved in mid-2014.
The company is forecasting annual oil production for FY2014 to almost double to 13-16 million barrels of oil equivalent (mmboe). In addition, it acquired about 23% in another prospective oil area, which could give it and its partner Exxon Mobil Corporation (NYSE: XOM) further expansion opportunities in the same region.
Its share price has steadily climbed in the past two years as investors anticipated improved earnings once the PNG LNG project was in production. The 44.5 PE ratio shows the high expectations of the market. Its dividend yield is 0.5%.
Foolish takeaway
It may be that Oil Search offers business growth opportunities, but due to the high PE it is difficult to say what share price gain there will be once the expected production levels are achieved.
