Veteran Australian resources sector writer Tim Treadgold believes that Horizon Oil Ltd (ASX: HZN) has great expectations with the planned development of its gas interests in Papua New Guinea.
Writing on the Australian website Stockhead, Treadgold said oil prices above $US80 a barrel are changing everything for Horizon — just as it is for the entire oil and gas sector, especially as a move up to $US100/bb.
He said Horizon was small by the standards of a business sector dominated by giants, and the company is already generating modest profits from a share of oil producing assets off the coasts of China and New Zealand.
“But the big game is the potential for liquefied natural gas (LNG) production in Papua New Guinea, a country which already hosts the handsomely profitable PNG LNG project of which ASX-listed Oil Search has a substantial stake,” Treadgold wrote.
“A lot needs to go right for Horizon if it is to achieve its biggest goal — the development of the Western LNG project in PNG in conjunction with the Spanish oil giant Repsol.
“In some ways Horizon and its PNG plans give it the appearance of a mini version of Oil Search — a view aided by a comparison of stock-market value. Horizon (has a capitalisation of) $A195 million and a share price of A16 cents, versus Oil Search at $A13.9 billion and a share price of $A9.07.”
He said the two companies share a big footprint covering oil and tenements in central and western PNG with Oil Search blazing a trail in terms of the size of what it’s found and the development of a substantial oil and gas business which includes LNG production.
“Horizon and Repsol are following Oil Search and have a similarly diverse spread of discoveries which need to be connected by a common pipeline to deliver gas to a proposed LNG facility on the southern PNG coast at Daru Island.
“Hurdles remain for Horizon to clear, most notably a dispute with the PNG Government over one of the tenements, PDL 10, which contains the liquids rich Stanley field.
“But, with LNG the flavour of the decade among energy consumers because it generates less pollution there is an impetus developing behind the Western LNG proposal which is for a relatively small project with an annual output of between 1.5 and 2 million tonnes of liquefied gas a year.”
Stockhead said concept engineering and design studies are underway for the Western LNG project which could “monetise” gas in fields such as Puk Puk, Douglas, Weimang and Langia with the aggregated material piped to the coast.
Ownership of the gas varies between tenements but the broad breakdown is roughly 28% Horizon and 41% Repsol with other interested parties including PNG’s national oil company, Kumul Petroleum, as well as Japan’s Osaka Gas.
Target markets for LNG include islands in neighbouring Indonesia, the South China Sea rim, and the bigger gas consumers, China and India.
Treadgold said joining the dots which will eventually lead to a viable LNG development is one reason for investors to refresh their interest in Horizon, another is that the company has a solid oil-producing business which last financial year generated revenue of $US100 M.
The outlook for the next few years is much of the same with production from a 26.95% stake in the Beibu Gulf oil fields off China and 26% in the Maari/Manaia oil fields off New Zealand expected to continue generating 5500 barrels a day for Horizon at a low operating cost of less than $US20/bbl.
Sources: stockhead.com.au; nzresources.com