Since mid-April, Oil Search Limited (ASX: OSH) is up almost 9% and last week hit an all-time high of $9.27. The LNG producer is ahead of rival LNG projects to start production and investors are looking to much bigger earnings.
What happened and how it will drive the stock?
— First LNG production
The company announced last Friday that its PNG LNG project, headed by Exxon Mobil (NYSE: XOM) and 29% owned by Oil Search, commenced liquid natural gas production in April and the first LNG tanker is now loading. This is ahead of schedule and within budget.
Chairman Richard Lee said this project, "will transform us from a medium sized oil and gas explorer and producer to a significant LNG exporter."
— Huge production ramp up
The project will be at full production capacity by 2015. In the first full year, the company's production base is expected to be four times higher. The company is projecting to add more than US$1.3 billion annually to cash flows. The step-change up in earnings is expected to be big.
It is up to a year ahead in production than the Australia Pacific LNG project (APLNG) involving Origin Energy Limited (ASX: ORG) and the Curtis Island LNG project with Queensland Gas Company and BG Group plc (LON: BG).
— Higher dividends on the way
Oil Search plans to materially increase dividend payments once final completion is reached and production is at full capacity. The precise dividend policy will be developed over the coming months. That's just one more thing shareholders have to look forward to.
— Developing more resources
The next phase is to expand the resources to underpin development of more LNG trains, or processing plants. Several adjacent resource areas exist and the company acquired a 23% interest in one that contains the Elk/Antelope gas fields.
This will make up the second LNG project in PNG, involving Exxon Mobil again and other major international energy companies.
