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Senex Energy Ltd drops 6%: Should you buy?

What: In early morning trade, shares in oil and gas producer Senex Energy Ltd (ASX: SXY) were trading around 6% lower, as the market digested the company’s full-year results announcement. Perhaps the market was upset about the company’s $37.9 million net profit after tax, which was 38% lower year-on-year, or the fact that diluted earnings per share were just 3.28 cents, compared to 5.32 cents in FY13.

However, as a long-term investor, I think the report showed a number promising results. Including:

  • Production of 1.38 mmbbls, up 10%
  • Sales revenue of $170.9 million, up 24%
  • Gross profit of $89.1 million, up 27%
  • Underlying profit of $44.7 million up 3%
  • A 327% reserve replacement ratio
  • Cost of production (excluding royalties) dropped to $31.08 per barrel
  • A 45% increase in net operating cash flow

So what: Today’s results have obviously failed to impress the broader market which was perhaps expecting the company to capitalise on its drilling success more rapidly. However Senex is, like a number of Australian oil and gas producers in the Cooper Basin, set to capitalise on higher spot prices and increasing demand for energy from Australia’s east coast.

Management’s guidance for FY15 is for 1.4 mmboe (plus) of production (slightly ahead of FY14 with more gas in the mix), however by 2018 management believe they have the ability to deliver real shareholder value from new and existing assets. See below.

Senex Full-year 2018 goals
Source: Senex Energy FY14 Full Year Results and Outlook Presentation, page 25.

Buy, hold, or sell?

With a growing 2P reserves base, strong cash position, capable management, ongoing drilling success, rising production, low costs and increasing spot prices I’m happy to continue holding my Senex shares for the long term.

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Motley Fool Contributor Owen Raszkiewicz owns shares of Senex Energy Ltd.    

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