A significant increase in half-year output and revenue couldn't save the Oil Search Limited (ASX: OSH) share price from slipping lower with the energy sector this morning.
The Oil Search share price dipped 1.3% to $7.24 at the time of writing when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is trading around breakeven.
The drop in the crude oil price isn't helping oil and gas stocks with the Woodside Petroleum Limited (ASX: WPL) share price falling 1.5% to $35.28, the Beach Energy Ltd (ASX: BPT) share price losing 1.4% to $1.94 and the Origin Energy Ltd (ASX: ORG) share price easing 0.3% to $7.40.
The big increase that wasn't
Coming back to Oil Search, the liquified natural gas (LNG) exposed company reported a 38% increase in production to 14.1 million barrels of oil equivalent (mmboe) and a 39% uplift in revenue to US$777 million for the first half 2019.
But investors may have been disappointed that the second quarter figures weren't as robust with output for the three months to June slipping 5% to 6.9 mmboe as sales slipped by an equivalent amount to US$378.9 million.
The drop is due to planned maintenance works that slowed production for 13 days during the period and management is trying to get investors to see the "glass half full" perspective by pointing out that its flagship PNG LNG joint venture project is producing at an annualised rate of 8.4 million tons per annum (MTPA), which is well above nameplate capacity.
Political risks still clouding over the stock
The company is also trying to reassure investors that it's working well with the new government of Papua New Guinea (PNG) after the sacking of its controversial prime minister Peter O'Neill.
However, the new government under James Marape has not signed off on the P'nyang Gas Agreement and there are delays to Oil Search's LNG expansion plan and development activity on the Angore field.
This has led management to lower its projected capital expenditure to between US$500 million and US$610 million from the previous guidance of US$545 million to US$655 million.
The uncertainty over its working relationship with the Marape government is one of the key reasons why I am hesitant to take a more bullish view on the stock even though the OSH share price looks to be good value after underperforming its peers.
The stock has slumped 20% over the past year compared to the 16% rally in the Santos Ltd (ASX: STO) share price and the 7% increase in Woodside Petroleum's share price.
At least Oil Search has a strong balance sheet with US$538.3 million in cash and a further US$900 million in untapped credit facilities.
