Bargain alert! Is this the cheapest ASX-listed energy producer?

Credit: greig davidson

Valuations for big energy companies like Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO) are hard to get a grip on with rapidly shifting oil prices.

On the one hand intrinsic values, which usually come from a discounted cashflow model, rely on making assumptions around the future price of oil which many expert analysts can’t agree on.

On the other hand volatile oil prices mean reported asset values are quickly out of date or invalidated by impairments, so asset-based valuations are also sketchy.

An alternative method

We can however compare the relative value of energy producers using Enterprise value (EV) divided by each company’s 2P (proved plus probable) energy reserves (EV/2P ratio). Enterprise value adjusts market capitalisation for debt and cash which helps to level the playing field.

Over the last 12 months these ratios have changed drastically. Santos and Senex Energy Ltd (ASX: SXY) have both sold off 2P reserves, Woodside Petroleum has bought new reserves and Beach Energy Ltd (ASX: BPT) has acquired an entire company named Drillsearch Energy.

How they rank

Of the four companies mentioned above, as well as smaller producer Cooper Energy Ltd (ASX: COE),  Senex Energy has by far the cheapest EV/2P ratio of just 2.6.

Company (ASX:Code) Enterprise Value ($millions) 2P reserves (mmboe) EV/2P
Senex Energy Ltd (ASX: SXY) 194 74.5 2.6
Cooper Energy Ltd (ASX: COE) 60 20 3.0
Beach Energy Ltd (ASX: BPT) 1,005 100 10.1
Santos Ltd (ASX: STO) 13,383 945 14.2
Woodside Petroleum Limited (ASX: WPL) 27,949 1,508 18.5

Source: Company reports

Notes: STO and WPL 2P reserves as at 31 December 2015. SXY 2P reserves as at 30 June 2015, minus adjustment for sale of Maisey Block, aprox 20mmboe. BPT 2P reserves as at 30 June 2015, plus adjustment for Drillsearch acquisition. BPT estimated EV post Drillsearch acquisition.

The massive difference for Senex lies in the way Enterprise value is calculated, removing cash from market capitalisation (market cap) and adding debt.

Senex has a huge cash pile which earlier this year made up 70% of the company’s market cap, and has no debt, dragging the Enterprise value down, while still holding substantial 2P reserves.

Santos has almost the reverse problem, the company’s large debt position pushes up its Enterprise value, but the company has fewer 2P reserves after a year of strong production, asset sales and down scaling reserves from 2P to 2C (contingent resources).

Cheap, but what about value?

In my view Senex is not only the cheapest of the listed energy producers, but one of the best placed to achieve growth over the next five years. The company has the cash position to invest in developing its reserves, no debt, and an agreement in place to sell the gas.

Prefer dividends to oil? Get The Motley Fool's Top Fully Franked Dividend Share For 2016

Forget BHP and Woolworths. This "dirt cheap" company. is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

Motley Fool contributor Regan Pearson owns shares of Senex Energy Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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 Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.