Shares in ASX-listed oil and gas companies are still in the doldrums with continuing low oil prices, but are there bargains to be found?
To start, let's eliminate the two major producers Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO). Despite being a strong, sturdy producer, at current prices I would not buy Woodside Petroleum, and although Santos looks cheap, the company holds a big pile of debt which adds risk.
One energy producer I would feel comfortable buying today is mid-tier producer Senex Energy Ltd (ASX: SXY). The company has a lot going for it and here are five of the biggest reasons to buy today:
1. Senex is relatively cheap
With a current market capitalisation of $468 million and a book value of $418.8 million, Senex Energy sells for price-to-book (P/B) ratio of 1.1. This compares to 1.75 for Woodside Petroleum and 1.3 for Drillsearch Energy Limited (ASX: DLS) which suggests the company offers relatively good value.
2. Senex has massive 2P reserves
Through exploration Senex grew net 2P oil and gas reserves by 96% between the 2011 financial year (FY11) and FY14, to 39.9 million barrels of oil equivalent (mmboe).
But the company is set to more than double that to upwards of 97.6 mmboe by the end of FY15, after a swap of assets in the Surat Basin in September last year with QGC which will add 57.7 mmboe in 2P reserves to the company's portfolio.
3. The reserves are exceptionally cheap
Based on the existing FY14 reserves alone Senex has an enterprise value to 2P reserve ratio (EV/2P) of 9.1. This compares to Drillsearch Energy Limited (ASX: DLS) on 19, Woodside Petroleum on 17.8, and Santos on 12 which means that Senex's pool of energy reserves are cheap compared to the others listed producers.
However when we factor in the expected additional FY15 2P reserves, Senex's ratio plummets to just 3.7!
4. Senex is focused on gas long term
The new pool of reserves will still require development, but they push Senex's total mix of energy reserves to 86% gas and 14% oil. While oil production has been Senex's key revenue source in recent years, the company has a long-term focus on gas, demand for which is expected to rise over the next seven years.
5. Senex is a smart operator
Due to its current growth phase Senex requires heavy investment in capital expenditure, but the company is a smart operator, utilising deals with bigger companies like Origin Energy Ltd (ASX: ORG) to fund exploration and development objectives without taking on significant debt.
Senex is also focused on producing in areas which have existing pipelines and support infrastructure, which reduces capital requirements and keeps operating costs low.
