Oil Search delivered first-half underlying net profit below Morgan Stanley's estimate while operating income was in-line with estimates. No dividend was declared.
The company has revised down its FY20 cost guidance while leaving production and capex guidance unchanged.
The broker uses conservative long-term oil price assumptions and notes at US$45/bbl, there is no value in Oil Search's operated oil position in PNG. Also, cost reduction in Alaska is critical for the project to move forward.
Oil Search has material upside if oil prices start to recover, believes the broker.
Morgan Stanley remains Equal-weight on Oil Search with the target price increasing to $3.30 from $3.20. Industry view: Cautious.
Target price is $3.30.Current Price is $3.06. Difference: $0.24 - (brackets indicate current price is over target). If OSH meets the Morgan Stanley target it will return approximately 7% (excluding dividends, fees and charges - negative figures indicate an expected loss).
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