MENU

Is Senex Energy Ltd a better bargain than Santos Ltd?

Oil and gas producer Senex Energy Ltd (ASX: SXY) today announced a moody looking 2016 results to investors.

Sales revenue plummeted 40% as production fell and the lower oil price bit hard. The big numbers look anything but stellar:

Senex Energy Ltd

FY15

FY16

% Change

Production (million boe)

1.39

1.01

-27%

Sales Revenue (millions)

$116

$69

-40%

Profit

-80.6

-$33

59%

Earnings per share

-7

-2.9

59%

However there was some good news for investors with 2P reserves being revised up by a considerable 16.5% and operating costs falling to their lowest ever level at $28 per barrel, excluding royalties.

Financially too Senex is in a strong position. At the current price of 27 cents per share the company’s cash pile makes up 33% of market capitalisation. But don’t get too excited – the cash is earmarked for a very specific schedule of work which will transform the company heading into FY17.

All eyes on GLNG

Although Senex currently makes most of its revenue from oil, Senex’s future is in gas. Almost 90% of Senex’s total 2P reserves are in gas, completely dwarfing oil, and this is where the company is rapidly transitioning towards.

Interestingly, much of the transition will be supported by the giant GLNG project operated by Santos Ltd (ASX: STO). Senex has a binding 20-year gas sales agreement with the project which means it can focus on getting the gas out of the ground, while being supported by existing infrastructure.

Santos noted last week that it will be writing down US$1.5 billion of its share in the GLNG project and that it had been increasingly reliant on third party gas due to a slower-than-anticipated ramp up of production at GLNG.

It also revealed that the cost of this third party gas had increased – a positive sign for Senex in the short-to-medium term.

Outlook for FY17

Senex has issued a lower production guidance for FY17 of between 800,000 and 1,000,000 barrels of oil equivalent (boe), but says it is in a position to move quickly and ramp up production if there is a sustained oil price recovery.

Investors should be equally focused on the company’s progress towards gas production however. Even though the mid-term outlook for natural gas pricing is poor, with supply expected to exceed demand, if you agree with some analysts that longer term demand will out-strip supply, Senex could be an appealing, if speculative, contrarian bargain today.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Regan Pearson owns shares of Senex Energy Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.