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3 hot oil stocks that look seriously undervalued

Oil and gas production in Australia is set to explode in the coming years as new technology like fracking and 3-D seismic makes new discoveries and production cheaper and more efficient than ever.

But many oil and gas companies still look seriously undervalued, even those with high margins and growing production. Three companies that are particularly attractive right now are Senex Energy Ltd (ASX: SXY), Strike Energy Ltd (ASX: STX) and Beach Energy Limited (ASX: BPT).

With a current price-to-earnings ratio of just 12.7, Senex Energy looks seriously cheap for a fast growing company. Senex was forecasting production growth of up to 28% for the full year to 30 June, but all eyes will be focused on the results of the company’s aggressive 30-well drilling program when it announces its full year results.

If Senex can continue to build its reserves replacement ratio and add to its ‘2P’ oil and gas reserves, shares could see a surge in interest.

With a market cap of $104 million, Strike energy is a smaller player but still has significant potential. The company is sitting on prospective net gas resources of 4.5 trillion cubic feet (tcf) and has been busy establishing sales agreements to commercialise its assets.

Although it is still early days (first production is forecast for 2017) Strike looks compelling at its current share price of $0.13, particularly with low break-even hurdles of production.

Beach Energy is the dominant player in the Cooper Basin and has forged key partnerships with Santos Ltd (ASX: STO) which spreads risk and cost. The company sells for an enticing eight times earnings and forecast production growth of as much as 20% for the full year to 30 June.

Beach has one of the cheapest pools of energy reserves in the Cooper Basin and also holds $428 million of cash on its balance sheet which makes up almost 20% of its $2.2 billion market capitalisation.

3 of the best oil and gas buys

Of the three companies Senex is my preferred company for its growth prospects and reliable management; however Strike Energy and Beach Energy both also appear to offer strong value given their prospects and bright futures.

However there are three more oil and gas plays I am even more bullish on. The Motley Fool has identified 3 of the best companies to profit big off the coming oil and gas boom and you can get all the details, FREE. Clicking here for your personal copy of The Motley Fool's brand-new FREE research report, "3 Oil Stocks to Send Your Portfolio Gushing Higher".

Motley Fool contributor Regan Pearson owns shares in Senex Limited.

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