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Senex Energy Ltd, Drillsearch Energy Limited or Beach Energy Ltd: Which oil and gas stock should you buy?

The past 12 months has been tough for oil and gas producers, as the market price for the black gold slid around 50%.

Brent crude oil has fallen from over $US110 per barrel in June to just $US55 per barrel today. Share prices of oil and gas producers have followed suite.

Indeed over the past six months Senex Energy Ltd (ASX: SXY), Drillsearch Energy Limited (ASX: DLS) and Beach Energy Ltd (ASX: BPT) have fallen 48%, 44% and 35% respectively.

But even the heavyweights like Woodside Petroleum Limited and Santos Ltd (ASX: STO) have been unable to avoid the selloff, down 8.5% and 43% respectively.

However with prices down, now could be the time to scope up one, or more, of these cheap-looking resources stocks.

Senex Energy Drillsearch Beach Energy Woodside Petroleum
Market Cap 397 378 1362 31416
Cash 76.6 152.38 411.3 2703
Debt 0 153.43 127.08 3326
EV 320.4 379.05 1077.78 32039
2P reserves (mmboe) 39.9 28.3 66 1437
EV/2P 8.03 13.39 16.33 22.30
Forecast P/E Ratio 10.7 5.3 9.35 11.33
Net Assets 482.5 363.4 1870.78 16276
Price/Book Ratio 0.82 1.04 0.73 1.93

Source: Company annual reports. Figures in millions of dollars, unless otherwise stated.

As can be seen in the above table, shares of junior oil and gas producers appear to be offering more compelling value than their larger counterpart, Woodside Petroleum.

However dividends do play a part in valuation, particularly in this low interest rate environment.  Woodside – Australia’s biggest independent oil and gas producer – currently trades on a forecast fully franked dividend yield of 7% whilst Beach Energy is expected to pay a dividend equivalent to 3.7% in the coming year.

Senex and Drillsearch are not expected to pay dividends.

However for capital gains, of the three Cooper basin producers Senex Energy appears to offer the most compelling value. It has no debt, is currently undertaking a self-funded drilling campaign and has a production cost (excluding royalties) of $31.08 per barrel. It also derives approximately 90% of revenues in US dollars.

Foolish Takeaway

Given the current oil price weakness, now could be a better time than ever to grab some oil producers on the cheap. My pick of the bunch is Senex. However it should be noted Senex, nor its peers, is an investment for the fainthearted and any further commodity price weakness could again see it rapidly sold off.

But given that much of the falls are likely to have already taken place, I think investors looking for exposure to oil and gas could worse than add it to their portfolios.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Senex Energy. You can follow Owen on Twitter @ASXinvest.

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