The Cooper Basin's best value play right now

Four energy producers put head-to-head, but which one is the best?

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The Cooper Basin, which has been described as the most important on-shore petroleum and natural gas deposit site in Australia, is showing renewed potential as significant, growing source of energy production recently.

The four most significant players in the region are Santos (ASX: STO), Beach Energy (ASX: BPT), Senex (ASX: SXY) and Drillsearch (ASX: DLS) and most have been chalking up big increases in reserves and production from recent drilling programs. But which company represents the best value for investors wishing to jump in and take advantage of the growth?

The companies can be difficult to compare given their different sizes and production levels. One simplistic way to cut through this is to use the EV/2P ratio. That is, a company's enterprise value divided by its proven and probable oil reserves, expressed as 2P.

Enterprise value takes into account the amount of cash and debt a company has in addition to its market capitalization which helps level the playing field.

Of the four companies Drillsearch comes off looking like the most expensive. With a market capitalization of $565 million, total debt of $137 million, and cash reserves of $36 million, the company has an EV of $666 million. Drillsearch has rapidly increased its proven oil reserves (2P) over the last year and as of 31 December 2012 recorded reserves of 18.7 million barrels of oil equivalent (mboe). This puts the company on an EV/2P ratio of 35.6.

The next most expensive is Senex with an EV/2P ratio of 17.9. Senex has no real debt and cash reserves of $127 million, but has also announced growth in reserves this year to 37 million barrels.

Beach Energy, who last month took over from Santos as the Cooper Basin's highest volume producer, comes in at third place with a score of 16.3.

Taking out the crown for 'best value play right now' in the Cooper Basin is Santos with an EV/2P ratio of 10.7. Santos has an enterprise value of $1.4987 billion and proven reserves of 1.406 billion barrels of oil equivalent. The reserves are spread across the globe and not confined to the Cooper Basin. This is a bonus for investors as it gives Santos a diversified portfolio that extends beyond the shores of Australia.

One reason for higher ratio of the smaller producers is likely that the market expects their exploration to uncover more reserves in the years to come. Indeed both Drillsearch and Senex announced significant increases in 2P reserves for the June quarter just gone, whereas Santos is expected to grow reserves at a slower rate.

Foolish takeaway

Santos may be slower to grow, but of the four key Cooper Basin operators it likely represents the best value right now when measured by enterprise value and proven reserves.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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