The worst performing ASX 200 oil stock is finally catching a break today

The Oil Search Limited (ASX: OSH) share price is outperforming today even as it suffered a big drop in quarterly revenue.

The Oil Search share price jumped 1.8% to $3.06 in morning trade when the S&P/ASX 200 Index (Index:^AXJO) gained 1.1%.

The rally in Oil Search puts it well ahead of its peers as well. The Beach Energy Ltd (ASX: BPT) share price fell 0.9%, the Santos Ltd (ASX: STO) share price added 0.8% and the Woodside Petroleum Limited (ASX: WPL) share price improved 1%.

Every dog gets its day

Oil Search’s stronger run today stands in contrast to its poor performance. The stock is the worst performer in the group as it crashed 54% over the past year. Shares in Santos and Beach shed around 23% while Woodside lost 40% over the same period.

The big slump in the crude oil price during the COVID-19 market turmoil is dragging on the energy sector, but Oil Search is hit harder due to governance and political challenges relating to its PNG project.

But these issues are brushed aside when Oil Search released its quarterly production update on Tuesday.

Strong production run

The group’s latest quarterly operated oil production jumped 14% over the previous quarter to its highest since the PNG earthquake in 2018.

While total production in the June quarter dipped 1% compared to the March quarter, the half-year figure of 14.66 million barrels of oil equivalent (mmboe) is 4% above 1HCY19.

However, while production is up, revenue in the three months to end June tumbled 26% to US$266.2 million compared to the first quarter of calendar year 2020.

On track to hit target

But the drop in revenue was expected given the well documented plunge in oil and gas prices, while the production figures were probably ahead of what many had feared.

“Despite the challenging COVID operating conditions and restrictions on personnel movement, our safety record for the quarter was excellent across all areas and our PNG oilfield operations performed above expectations,” said Oil Search’s managing director Keiran Wulff.

“Combined with continued strong production from the ExxonMobil-operated PNG LNG Project, Oil Search is on track to achieve its production targets in 2020.”

Other positives for Oil Search

The group also successfully completed its two-well Alaskan exploration program with new oil discoveries conveniently close to existing and proposed infrastructure.

Oil Search also looks well placed to survive the unpredictable trading environment as it raised around US$700 million in capital in May.

Is Oil Search share price a buy?

While the positive quarterly update gives the embattled energy company much needed relief, I don’t think it will be enough to trigger a re-rating in the stock.

There are still too many unanswered questions relating to Oil Search’s alleged role in a bribery scandal in PNG.

This means Oil Search will likely continue to trade at a discount to its peers until the governance issues are resolved.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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