CITIGROUP has upgraded its forecasts for the oil and gas sector, saying Australian energy companies are poised for strong growth in the next 12 months.
The company has revised target prices for Santos, Woodside Petroleum and Oil Search, predicting an average total return of 36 per cent for the three companies.
Citi has increased its 12-month target price for Santos from $19 to $20. This price would deliver a 51.2 per cent return compared with Santos' trading price of $13.23 yesterday.
Morgan Stanley Smith Barney analyst David Robinson said the oil and gas sector in Australia would benefit from increased energy demand.
"If you look at where we are in the cycle we do believe that we will get a global recovery which will mean we will return to needing more energy,'' he said.
He said a raft of liquefied natural gas projects in the pipeline for Australian companies underpinned the strong growth prospects.
Mr Robinson pointed to the recent binding agreement between Santos and Malaysian-owned Petronas, and the Papua New Guinea LNG agreement between Exxon Mobil, Santos and Oil Search as transformative agreements for the sector.
The Citi report also revised up its short-term oil price estimates to $60 a barrel for the second half of 2009, and $65 a barrel for 2010 onwards.
A report from Euroz Securities on Beach Petroleum released yesterday echoed Citi's bullish sentiment for the sector.
Euroz said Beach was likely to record 77 per cent year-on-year growth on its earnings per share based on the company's oil and coal seam gas activities. Euroz had a price target of $1.41 for Beach compared to yesterday's closing price of 76.5c.
Citi's forecast target price for Woodside is $53.60 with an estimated total return, including dividends, of 27.3 per cent. Oil Search's target price is $7.50 with an expected total return of 40.1 per cent.
Woodside shares were trading at $40.47 yesterday. Oil Search closed at $5.29.
BPT Price at posting:
74.1¢ Sentiment: Buy Disclosure: Held
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