Shares in Oil Search jumped 3.5% on Tuesday morning while Santos and Origin, which both operate LNG projects, were trading 0.4% lower each at $7.51 and $11.21 respectively as a major drop in the price of crude weighs heavily on the sector.
Oil Search's shareholders brushed aside the 1.5% West Texas Intermediate oil price fall to $US50.15/barrel. It did not hurt that the company this week reported record quarterly production of 7.41 million barrels of oil equivalent for the second quarter. That was 7% higher than Q1 and 40% up from the same time last year.
While it is well known that the ramp-up of the ExxonMobil-operated PNG LNG projects was the key driver, Oil Search also upgraded its 2015 production forecast to between 27MMboe and 29MMboe compared to its previous guidance range of 26-28MMboe.
Oil Search also managed to lower production costs in the face of declining global energy prices, saying full year production costs would fall to $US9 to $11 per barrel compared with earlier estimates of $10 to $12/bbl.
The company is not entirely immune from dropping oil prices though. Its total Q2 revenue dropped 17% to $US391.5 million as gas prices fell 35% over Q1, although a rebound in crude oil price helped offset some of the loss.
To compare to its fellow LNG producer, Santos also suffered a drop in revenue when it reported its quarterly last week but its share price fell.
Motley Fool analyst Brendon Lau said this was because Oil Search was tipped to generate a "massive amount of cash" from the ramp up of its PNG LNG project in the near-term, which would put it in a strong position to pay down its $4.3 billion debt.
Lay said Oil Search also had $750 million in undrawn corporate credit facilities and held S843 million in cash.
Since PNG LNG started production in April last year it has exported more than 7 million tonnes of LNG in "take or pay" contracts that oblige customers to pay for the gas regardless of whether they need it.
"For this reason, I believe Oil Search is the best placed among the major oil and gas stocks and I see a 20% upside to the stock over the next 12 months," Lau said.
