It will no doubt come as a shock to readers but Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) are no longer the giants of the energy sector that they once were!
With market capitalisations of $8.85 billion and $4.89 billion respectively, there is a new rival on the scene for biggest company.
Oil Search Limited (ASX: OSH), whose main asset is a 29% interest in the PNG LNG Project along with operating all of PNG's producing oil fields currently has a market capitalisation of $8.85 billion – right on par with Origin and nearly double the size of Santos! (source: Morningstar)
How did this happen?
While investors have just witnessed a big fall on the ASX with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) going into a dramatic 4.1% tailspin on Monday, for the 12 months the index is down a less abrupt 10.8%.
Meanwhile, Brent oil is trading below US$45 a barrel for the first time since March 2009. This is crushing the profitability of oil producers and has led to investors fleeing the sector. Origin, Santos and Oil Search all fell more than the index on Monday and all three have fallen significantly more than the index over the past year.
For the 12 months Origin is now down 48.85%, Santos is down 66.3% and Oil Search is down 39.1% (source: Google Finance).
Fourteen months ago, at 30 June 2014, Origin, Santos and Oil Search had market capitalisations of $16.13 billion, $14.22 billion and $10.89 billion respectively. The larger share price falls experienced by Origin and Santos since then has left them priced far lower today.
Is Oil Search really worth more than Origin and Santos?
The relative increase in Oil Search is almost certainly because the market is discounting – quite possibly correctly – the perceived weaker balance sheet positions of Origin and Santos, rather than ascribing a higher value to the underlying assets of Oil Search.
If Origin and Santos are ultimately forced into a dilutive capital raising or bottom of the cycle asset sales, then it is possible that Oil Search is indeed worth more than Origin and Santos.
