Small cap oil and gas producer Senex Energy Ltd (ASX: SXY) today released the retail investor part of its recent capital raising. Hoping to raise up to $40 million from retail shareholders in addition to the $55 million from institutional shareholders announced yesterday, Senex will use the funds to accelerate its flagship – but dormant – Western Surat gas project.
Senex has issued 173 million shares to new strategic partner EIG and various institutional shareholders, with up to a further ~130 million shares to be issued to retail shareholders (depending on the final price of the offer) at a 5% discount to the recent market price.
The Western Surat project is currently estimated to have around 427 Petajoules (PJ) of gas (Senex's share) stored, and in late 2015, Senex signed a binding 20-year agreement to sell up to 50 Terajoules (TJ) of gas per day to Santos Ltd's (ASX: STO) Gladstone LNG project. Senex's oil/gas fields sit adjacent to GLNG's own fields near Roma, Queensland. Senex thus has a guaranteed buyer for its gas, with prices to be in U.S. dollars and linked to the price of oil. At the time of the agreement (September 2015), Senex wrote that the project was expected to be 'economic' even at then prices of ~US$44 per barrel.
So, should you participate?
Senex hasn't yet made a Final Investment Decision (FID) on the project. The capital raising and partnership with EIG will put the company on a strong financial footing and add to Senex's existing cash reserves of $86 million.
With all of the uncertainty about the future price of oil, I can't absolutely recommend that shareholders take up the offer. The 5% discount is small enough and Senex's share price volatile enough that patient investors who want more shares could likely buy shares on the market at the same or lower price.
I do think that the accelerated development of the project is good news for shareholders however, and patient investors could potentially do quite well out of Senex shares over the next five years. I had to sell my shares in the company a while ago for reasons unrelated to its performance, but I still think Senex has a lot of potential and find the company quite interesting today.
