Facing off in the oil and gas pool, the incredibly fast growing oil and gas producer, Oil Search Limited (ASX: OSH) goes head to head with Santos Ltd (ASX: STO) in a highly anticipated pool stage round of the ASX world cup.
Pre-match commentary and stats
Whilst both companies are roughly around the same size, it does seem that the crowd pleaser (and market favourite) is Oil Search, with its highly anticipated jump in production expected to quadruple volumes. Although Santos is no slouch, its production growth is not expected to hit the double digits this year.
| Evaluation Metrics |
OSH |
STO |
| Share Price (AUD$) |
$9.80 |
$14.66 |
| Market Capitalisation (AUD$m) |
$14,886 |
$14,298 |
| EV/2P |
39.13 |
14.20 |
| Reserves Life (based on TTM) |
71.4 years |
26.8 years |
| Trailing Price to Earnings |
64.75 |
27.71 |
| Debt to Capitalisation Ratio |
23.2% |
28.8% |
| Dividend Yield |
0.40% |
2.02% |
Kick Off
Santos quickly takes charge of the situation with an Enterprise Value to Proven and Probable Reserves (EV/2P) ratio completely blowing Oil Search out of the water (14.2 to 39.1). Despite the superb abilities of the Oil Search defenders, Santos scores at the very start of what looks to be a thrilling match up.
Oil Search: 0
Santos: 1
Oil Search now takes possession and launches a blistering offensive, based on its reserves life. At current levels of production this equates to 71.4 years compared to Santos' 27.7 years, however, on forecast production levels, Oil Search's reserves life drops to 26.5 years and Santos to 25.1 years. Although it looked like a goal was imminent, Santos manages to kick the ball out of its danger zone and back to the midfield where the sparring continues.
Oil Search: 0
Santos: 1
At half time Oil Search is looking a bit worse for wear, especially compared to its less favoured rival Santos. As the second half commences, it is clear that Santos is determined to push through.
Santos is looking for some weaknesses in Oil Search's admirable defence line, and starts to break it down gradually using its P/E ratio of 27.7x. Oil Search's P/E ratio of 64.8x does not stand a chance and it looks like it's all over, Santos scores again! Although a goal is a goal, one wonders whether this one was really deserved given its metrics are above what one would consider value (obviously there is a fair bit of growth built in here).
Oil Search: 0
Santos: 2
It seems that from a balance sheet perspective, Oil Search is stronger with a debt to capitalisation ratio of 23.2% against Santos at 28.8%. Although both are quite reasonable, Oil Search just comes through with the goods making it more of a competition.
Oil Search: 1
Santos: 2
As the final moments draw nearer, Santos launches one final attack based on its dividend yield of 2%. Oil Search cannot compete with its yield of 0.4% and thus does not have the strength to defend against this war of attrition – Santos scores again!
Oil Search: 1
Santos: 3
As the final whistle blows, there is no doubt that it has been a well fought match, with Santos coming out the victor despite the crowd pleasing efforts of Oil Search. Although it does seem that the metrics for Santos look better, Oil Search has grown extremely quickly over the past few years and should not be underestimated.
