Energy producer Oil Search Limited (ASX: OSH) reported a huge increase in annual revenue and net profit on the back of new LNG production and exportation coming from its PNG LNG project.
In what the company called a transformative year for Oil Search, the second half of financial year 2014 was the first full half-year period of operations after LNG production began in the first half. Revenue and underlying net earnings per share more than doubled for the oil and gas company.
Here are the annual results highlights:
Revenue US$1.61 billion, up 110% from US$766.3 million
Earnings before interest, tax, depreciation, amortisation and exploration (EBITDAX) US$1.26 billion, up 127% from US$552.6 million
Net profit after tax (NPAT) US$353.2 million, up 72% from US$205.7 million
Earnings per share US 32.5 cents per share before significant items, up 112% from US15.36 cps
Dividend per share final unfranked dividend of US8 cents, up 300% from US2 cents per share
Special dividend an unfranked US4 cents per share special dividend was declared
The project's two LNG processing plants, or "trains" are now producing at or above nameplate capacity of 6.9 million tonnes per annum (MTPA).
When the project was determined to have reached operational and financial completion in February, project partners received their share of revenues held in escrow.
At year end, Oil Search had a huge cash position of US$960.2 million.
Investors are looking towards how big the first complete year of production revenue will be in financial year 2015 as project development capex comes down. One concern for sales is the dramatic fall in world oil prices. The company stated it planned to concentrate on high-returning core LNG growth projects. Oil Search has also reduced its planned financial year 2015 capex budget around 20% as well as targeted about a 20% cut in production costs.
For Foolish investors, resources industries like oil and gas can be hazardous because ultimately companies are selling commodities that follow the law of supply and demand. They are price-takers and can't control the prices they sell at. The huge drop in crude oil prices illustrate that potential danger very well.
If you feel you understand the market and business mechanics of an oil and gas company well enough, then Oil Search could be one of the better performers over mid-term when compared to other LNG producers like Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG), which are also starting production at two big LNG projects in 2015.
