Why the Cooper Basin will boom in 2014

It was a big year for the Cooper Basin in 2013. The region intersecting Queensland and South Australia hit its highest oil production in 20 years and by many accounts this growth is just the start of a boom in oil and gas production.

The new year will see several key Cooper Basin operators targeting record production volumes, yet muted share prices remain for many of these companies. This creates an exciting opportunity for investors.

Drillsearch (ASX: DLS) for example is targeting production growth of over 100% in 2014. According to a company presentation EBITDA to 31 October are already up 133% on the previous full-year result. Despite this the company’s share price has fallen 8% over the last 12 months.

Similarly, shares in Senex Energy (ASX: SXY) are down 6% compared to 12 months ago, but production for the 2013/2014 financial year is expected to increase 20%, with growth in reserves also expected to come on the back of an extensive exploration program.

The massive increase in cash flows and long-term potential of the Cooper Basin has attracted the attention of some world’s biggest energy companies. Chevron, undertaker of the massive Gorgon LNG project, has signed a deal with Beach Energy (ASX: BPT) worth up to US$349 million to fund future exploration and get in on the action. Chevron has also been identified by The Australian as a potential acquirer of Beach Energy.

As production heats up so does competition to expand both inside and outside the Cooper Basin region and this competition is tipped to drive a surge in merger and acquisition deals in 2014.

In December, Senex Energy made an offer to merge with AWE Limited (ASX: AWE). This was rebuffed because AWE felt the deal undervalued the company and was not in shareholders’ best interests.

The Australian has reported that analysts are expecting Beach Energy to make a sizeable acquisition in 2014. This is because it obtained a $320 million debt facility in July last year. Beach Energy owns shares in both Drillsearch and Cooper Energy (ASX: COE).

Foolish takeaway

Big increases in reserves and production, combined with the subdued share price growth of many of the Cooper Basin’s key operators make it a promising area for investment in 2014. Consolidation through merger and acquisition deals also has the potential to increase value for shareholders of the companies involved.

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Motley Fool contributor Regan Pearson owns shares in Senex Energy

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