Agoracom

AUSTRALIA'S largest oil and gas producers lack growth opportunities to drive up share prices this year, according to brokers Credit Suisse.

Forecast earnings for Woodside Petroleum (wpl.ASX:Quote,News) and Santos (sto.ASX:Quote,News) do not support existing stock prices, while the premiums at which stocks are trading to valuations mostly preclude gains from mergers and acquisitions, the securities firm said.

Oil Search, Papua New Guinea's biggest oil producer, is the best placed of the larger stocks for share price gains because of progress on a PNG liquefied natural gas venture.

Woodside, Australia's second-biggest oil and gas producer, in November cut forecast output for this year by as much as 20 per cent.

Santos said in October it would scale back its 2008 drilling program in central Australia due to a lack of exploration targets.

Oil Search might benefit from progress on an ExxonMobil-led liquefied natural gas venture in Papua New Guinea, Credit Suisse said.

"We are marginally negative on the sector," the analysts said.

"There is a lack of organic upside in the sector compared to 2004-05 when almost all companies had significant development portfolios."

Woodside, 34 per cent owned by Royal Dutch Shell, dropped 67¢ to $50.85 on Friday. Santos fell 20¢ to $14.24 and Port Moresby-based Oil Search lost 18¢ to $4.73.

Analysts said the focus this year would be on developing, valuing and acquiring oil and gas reserves. Any revising of reserves higher would most likely result from progress on LNG projects and growth in coal-seam gas.