Although most of Australia's hydrocarbons come from offshore, there has been significant development onshore. In particular the Cooper Basin, first developed by Santos (ASX: STO) in 1963, is supplying most of our onshore hydrocarbons and delivering them through an extensive system of pipes to the east coast of Australia. Demand for Cooper gas will increase dramatically as the LNG trains in Queensland come into play over the next five years.
Today the Cooper has 165 gas fields and 103 oil fields. There has been recent rapid growth in oil exploration success with the emergence of prolific oil production fairways. Both conventional and unconventional gas discoveries are relatively close to existing infrastructure for distribution to the east coast.
Averaged over the 2013 December quarter, measured in barrels of oil equivalent per day, the five top onshore oil and gas producers in the Cooper are:
- Beach Energy (ASX: BPT): 14,326 bopd
- Santos (ASX: STO): 9,782 bopd
- DrillSearch Energy (ASX: DLS): 8,472 bopd
- Senex Energy (ASX: SXY): 3,804 bopd
- Cooper Energy (ASX: COE): 1,511 bopd
Overall, Santos is the largest company by far with a market capitalisation of $14.2 billion. The corresponding values for the others are Beach with $1.4 billion, Senex with $673 million, DrillSearch with $449 million and Cooper with $181 million.
DrillSearch has the lowest price-to-earnings ratio of 8.5. The second best ratio is Beach at 10.2, then Senex and Cooper tie for third at 13% each. The worst ratio is Santos at 26.3 times. This is understandably high due to potential sources of earnings, especially the LNG projects in Papua New Guinea and Gladstone.
All five companies are cash-flow positive with Santos earning 51.9 cents per share for the 12 months ending December 2013. Earnings per share for the others were Beach, 10.8 cents; DrillSearch, 13.3 cents; Senex, 5.5 cents; and Cooper, 0.5 cents, all for year ending June 2013.
Foolish takeaway
All five companies represent good value considering their rapid growth in their respective production of oil and gas. Only DrillSearch has all its interests in the Cooper Basin. Santos and Beach have extensive outside interests.
If I were to make a choice, it would be first Santos, as its LNG production is going to make a huge impact on the bottom line as it comes into operation over the next couple of years. My second choice would be DrillSearch, as it represents the best value based on price-to-earnings ratios.
