Category: Financial Markets
The PNG oil and gas producer reported first-half 2021 underlying net profit after tax, up 460% to USD 139 million. Lower-than-expected operating costs were the driver of outperformance.
Net operating cash flow increased 52% to USD 308 million. This allowed group net debt to fall USD 254 million in the first half to USD 2.10 billion, excluding operating leases. Leverage (ND/(ND+E)) was 27% with annualized first-half net debt/EBITDA still somewhat elevated at 2.3, though likely to improve given stronger second-half LNG prices.
Oil Search declared an interim USD 3.30 cent dividend, up from zero in the previous corresponding period and ahead Oil Search maintained all 2021 guidance including production of 25.5-28.5 mmboe, unit production costs of USD 10.50-11.50 per boe, and investment expenditure of USD 250 million-350 million. The current AUD 6.10 Santos share price implies an Oil Search value of AUD 3.83 and Oil Search shares trade close to that mark.
Company’s Future Outlook
Oil Search shareholders will hope to achieve the ultimate value potential through Santos shares. It is forecasted a 70% increase in group production to 46 mmboe by late this decade, capturing PNG LNG expansion and the Papua LNG projects, but not yet inclusive of Alaska North Slope’s oil, pending Pikka front-end engineering and design, or FEED, outcome. This, regardless, drives an 11.8% 10-year group EBITDA CAGR to USD 1.85 billion by 2030, from a coronavirus-affected 2020 launch year.
Company Profile
Oil Search was founded in 1929 and operates all of Papua New Guinea’s oilfields. The PNG government holds a 10% interest. Oil Search had successfully run PNG oil fields since assuming operatorship from ExxonMobil in 2003. However, the tyranny of distance saw the large and high-quality gas fields largely stranded until 2014. The PNG LNG project is the first step to monetize those vast gas resources, again under the direction of ExxonMobil. First-stage construction is complete, with potential for expansion from two trains to five.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
and operating challenges for utilities like Edison International. But California’s aggressive clean energy goals also offer Edison more growth opportunities than most utilities. Edison’s plans for $5 billion of annual capital investment and good regulatory support will generate 6% annual earnings growth beyond 2021. But this growth trajectory could be lumpy as regulatory delays, wildfire issues, and California energy policy changes lead to shifts in spending and cost recovery.
New equity issuances in 2019 and 2020 in part to fund its $2.4 billion contribution to the state wildfire insurance fund and a higher allowed equity structure in rates weighed on earnings the last two years. But Edison now has most of its financing in place to execute its large growth plan, which ultimately will drive earnings and dividend growth.
Growth opportunities at Southern California Edison address grid safety, renewable energy, electric vehicles, distributed generation, and energy storage. Wildfire safety investments alone could reach $4 billion during the next four years. In August, regulators approved nearly all of Edison’s 2021-23 investment plans. Ongoing regulatory proceedings will address wildfire-specific investments and Edison’s 2024 investment plan.
Financial Strength
Edison’s credit metrics are well within investment-grade range. California wildfire legislation and recent regulatory rulings have removed the overhang that threatened Edison’s investment-grade ratings in early 2019. Edison has kept its balance sheet strong with substantial equity issuances since 2019. Edison issued $2.4 billion of new equity throughout 2019 at prices in line with our fair value estimate. This financing supported both its growth investments and half of its $2.4 billion contribution to the California wildfire insurance fund. The new equity in 2019 also allowed Southern California Edison to adjust its allowed capital structure to 52% equity from 48% equity for ratemaking purposes, leading to higher revenues and partially offsetting the earnings dilution. The board approved a $0.10 per share annualized increase, or 4%, for 2021, the same increase as it approved for 2020.
Bull Says
- With some $5 billion of planned annual investment during the next four years, it is projected 6% average annual average earnings growth in 2021-24.
- Edison has raised its dividend from $1.35 annualized in 2013 to $2.65 in 2021, demonstrating management’s commitment to meeting and maintaining a 45%-55% target payout ratio on utility earnings.
- California’s focus on renewable energy, energy storage, and distributed generation should bolster Edison’s investment opportunities in transmission and distribution upgrades for many years.
Company Profile
Edison International is the parent company of Southern California Edison, an electric utility that supplies power to 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Edison Energy owns interests in nonutility businesses that deal in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary Edison Mission Energy out of bankruptcy to NRG Energy.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.