AE Portfolio Aggressive Holding Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY) might be the most attractive oil and gas target in the world.

When the key Papua New Guinea Liquefied Natural Gas (PNG LNG) comes online, Oil Search’s output will quadruple to 25.6 million barrels of oil equivalent in 2015 from 6.4 million in 2013. And production may reach 35.6 million barrels by 2020. Oil Search owns 29 percent of PNG LNG.

Revenue is projected to rise 234 percent to USD2.42 billion by 2015, from USD725 million in 2012, faster growth than any of the 33 other exploration and production companies with a market value of over USD10 billion for which estimates are available, according to data compiled by Bloomberg. The overall group is projected for average sales growth of 49 percent.

And Oil Search’s estimates, courtesy of Goldman Sachs, don’t include the potential for expansion to a third and fourth train.

During the quarter, the PRL 3 joint venture, which includes ExxonMobil Corp (NYSE: XOM), operator and 33.2 percent owner of PNG LNG, narrowed the range of options under review for the potential development of the P’nyang gas field.

A preferred development plan is expected to be selected soon, with a decision made on whether to progress into front-end engineering and design work. The primary focus is the use P’nyang gas as the foundation for a third PNG LNG train.

Oil Search, which has a 38.5 percent stake in the field, estimates that P’nyang has about 2.5 trillion to 3 trillion cubic feet of gas, a little more than half the 4 trillion to 5 trillion cubic feet that Exxon estimates will be needed to support a third train.

Exxon is in talks with Houston-based InterOil to invest in the latter’s Papua New Guinea gas assets, which would presumably provide the remaining resources to support a third train.

Oil Search and Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY), which owns 12 percent of PNG LNG, would presumably have to sign on to Exxon’s InterOil plan, but both would benefit from expansion of the project and exposure to new trains offering higher returns.

And Exxon would likely offer either compensation for the dilution Oil Search and Santos would suffer or stakes in InterOil that would preserve the ratio of equity shares in PNG LNG.

As of June 12 PNG LNG was more than 85 percent complete. The project is on track to post first LNG sales in 2014 and to come in within the USD19 billion budget established in November 2012. The liquefaction facilities, as currently devised, will comprise two LNG production trains with total capacity of 6.9 million metric tons per year.

In late November 2012 Exxon Mobil announced a 20 percent increase in costs for PNG LNG, to USD19 billion, due primarily to foreign exchange fluctuations and torrential rain but also because Exxon expanded capacity from the originally planned 6.6 million metric tons per year.

Mr. Botten noted at the time, “As previously indicated, the capital cost increase is expected to be funded 70 percent by debt and 30 percent by equity. Discussions are currently underway to secure the USD1.5 billion of supplemental debt that is provided for under the existing project finance agreement, to fund the 70 percent debt component.”

In the UBS presentation in mid-June Mr. Botten said discussions on the additional financing are “progressing well.” Negotiations are “on schedule” with “strong interest expressed by prospective lenders.” Management expects the additional financing to be in place well before the funding is needed, toward the end of 2013.

Oil Search, with a strong balance sheet, is able to fund remaining equity share of PNG LNG as well as its active exploration and development program. A large part of its exploration budget is discretionary, and management is able to reduce it if necessary. Oil Search also has ample capacity to raise additional debt funding should the need arise.

Oil Search is well funded, with cash of USD438.6 million as of the end of the first quarter. A new USD500 million corporate facility remains undrawn.

There aren’t many LNG assets in the world with the kind of economics that PNG LNG has, with the scope for further expansion. The project makes Oil Search an attractive takeover candidate.

There are three major global players that may have the combination of local knowledge, experience working with Oil Search and insight into the long-term potential of its assets that could drive a bid.

Exxon Mobil has an obvious relationship. France-based Total SA (France: FPE, NYSE: TOT) recently executed an agreement with Oil Search to explore for and produce natural gas in Papua New Guinea. And Australia-based Woodside Petroleum Ltd’s (ASX: WPL, OTC: WOPEF, ADR: WOPEY) current CEO, Peter Botten, was once the Exxon executive in charge of the PNG LNG project.

Whether a deal materializes or not, Oil Search has significant valuation upside from here based on prospects for third and fourth PNG LNG trains.

Production in the first quarter of 2013 was relatively soft at 1.56 million barrels of oil equivalent (MMboe) due to two unplanned outages at its Kutubu field. That compares to 1.46 MMboe in the first quarter of 2012 and 1.79 MMboe in the fourth quarter. Revenue for the period was USD176 million, based on an average realized price of USD113.29 per barrel.

Oil Search reiterated a 2013 production forecast of 6.2 million and 6.7 million barrels of oil equivalent, flat with 2012. Capital expenditure in on track to USD1.93 billion to USD2.1 billion, up from USD1.86 billion in 2012.

The company’s major drilling program stepped up with the spudding of the Flinders 1 exploration well offshore Gulf of Papua on March 31. Drilling continued at the Taza 1 well in Kurdistan; early in the second quarter the well flowed oil from the second primary objective, the Euphrates Formation.

Oil Search reported a 13 percent decline in 2012 net profit after tax (NPAT) to USD175.8 million from USD202.5 million in 2011 after the company more than doubled spending on exploration and suffered several shutdowns at its oil facilities.

Production for the year was impacted by the shutdown of the Kumul Marine Terminal in Papua New Guinea in late July after an oily sheen was spotted on the surface of the water. The company checked the facility, which has since reopened, but was unable to find the source of the oil leak.

Management said the Kumul shutdown caused deferral of 400,000 barrels of oil equivalent, though overall annual production of 6.38 million barrels of oil equivalent was within its guidance range.

Oil Search spent USD144 million on exploration activities, up from USD60.6 million in 2011.

The company declared a final dividend of USD0.02 per share, in line with the final dividend for 2011. It was paid April 9, 2013, to shareholders of record as of March 14, 2013. Shares traded ex-dividend as of March 7.

Oil Search has generated a total return in US dollar terms of 13.8 percent since its addition to the AE Portfolio Aggressive Holdings in the January 2012 issue. The share price is up 21.3 percent on the ASX during this timeframe.

Year to date Oil Search has tacked on 10.6 percent in local-currency, share-price only terms. Including dividends and the impact of the aussie’s 8.8 percent decline versus the US dollar American investors have enjoyed a total return on the stock of just 1.7 percent.

Oil Search is more properly a “growth-plus-dividend” story rather than a “dividend-plus-growth” story. Its USD0.04 annual dividend rate and current 0.5 percent yield are quite modest. And it should be noted that the company cut the payout in half from 2008 to 2009, amid the heat of the Great Financial Crisis.

Oil Search is a buy under USD8 on the ASX using the symbol OSH and on the US over-the-counter (OTC) market using the symbol OISHF.

Oil Search also trades as an American Depositary Receipt (ADR) on the US OTC market under the symbol OISHY. Oil Search’s ADR represents 10 underlying shares traded on the ASX and is a buy under USD80.

Oil Search’s financial year corresponds with the calendar year, Jan. 1 to Dec. 31. The company reports full financial and operating results twice a year; it typically posts first-half results in late-February, with full fiscal year numbers out in late-August.

As for its regular dividend schedule, the board approved and management declared a final dividend of AUD0.02 per share on Feb. 26, 2013. It was paid April 9, 2013, to shareholders of record as of March 14. The shares traded ex-dividend on this declaration as of March 7.

An interim dividend of AUD0.02 was declared Aug. 21, 2012. It was paid Oct. 8, 2012, to shareholders of record as of Sept. 13, 2012. Shares traded ex-dividend on this declaration as of Sept. 7, 2012.

Dividends paid by Oil Search are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

The Australian government withholds 5 percent to 15 percent, based on the US-Australia tax treaty on double taxation. The two countries have not taken the step of eliminating withholding from dividends paid in respect of shares held in a US IRA, as have the US and Canada.

Among the analysts who cover the stock, 12 rate it a “buy” according to Bloomberg’s standardization of brokerage house recommendation terminology. There are three “hold” and one “sell” ratings on the stock at present. The “best consensus” 12-month target price among the 13 analysts that provide such a number is AUD9.07, with a high of AUD10 and a low of AUD8.50.