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Is the Senex Energy Ltd share price dirt cheap?

The Senex Energy Ltd (ASX: SXY) share price is up nearly 30% in three months.

Senex Energy Ltd Share Price

Source: Google Finance

Source: Google Finance

As you can see in the chart above, the Senex Energy share price has gained almost 30% despite its two larger peers, Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) plumbing new lows.

What’s going on?

Earlier this year, the $420 million Senex announced a capital raising to develop its key project in the Western Surat basin, of the Maranoa region, Queensland. Senex announced the $95 million capital raising to fund the development. 

The company recently committed to a $50 million investment in the project, with wells expected to come online by the middle of this year. It is forecast to have annualised production of around 600,000 barrels of oil by mid-2018. That’s around 10 terajoules per day. Senex has signed a 20-year sales agreement with Gladstone LNG (GLNG) for up to 50 terajoules of gas per day.

Meanwhile, the company’s South Australian assets in the Cooper Basin are expected to generate 800,000 barrels of oil equivalent in its 2017 financial year.

“Looking ahead, we anticipate our Cooper Basin oil and gas production profile to plateau before transitioning to growth in the near term,” Senex Managing director, Ian Davies, said last month. “Further, we anticipate a material production contribution from our flagship Western Surat Gas Project from FY18, with gas volumes to increase year-on-year.”

Is Senex a buy?

At today’s prices, Senex might be considered good value. At 31 December 2016, it had $83 million of cash with another $93 million coming online from its capital raising. Although much of that will be committed to an investment program, it appears a lot healthier than other debt-laden or under-funded oil producers. However, Senex is a high-risk investment and dependent upon commodity prices. For those reasons, it’s not at the top of my buy list.

A Big, Fat, Fully Franked Dividend

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen encourages your feedback. You can follow him on Twitter @OwenRask.

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.

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