Cooper output on track for guidance
3QFY18 production of 0.19mmboe (vs Morgans 0.21mmboe) declined 5% on the previous quarter, with net sales volumes of 0.17mmboe also trailing our estimates. Senex Energy (SXY) remains confident FY18 production will fall within guidance of 0.75-0.9mmboe, although we note at the end of 3Q it is on track to fall in the lower half of that range. Capex guidance for FY18 was also maintained at $80-$100m.
A highlight in the quarter was the success at SXY's first horizontal well in the Cooper Basin, which posted initial production of approximately 1,850boepd from 578m of net (horizontal) pay in the Birkhead formation, and is still producing around 1,600boepd 45 days into production. Horizontal drilling in the Cooper could open up opportunities to add new oil growth, even possibly in other formations such as Namur.
Another good deal
Understandably a key focus within the 3Q'FY18 result was the solid mutually beneficial deal SXY struck with Beach Energy (BPT), where BPT agreed to transfer A$43m of remaining free carry to SXY's core Western Flank operations. SXY outlined the work program as including three horizontal wells, seven exploration wells and the installation of associated infrastructure. While early days, there is potential for more BPT/SXY co-operation in the Cooper Basin following up on any success from this program.
WSGP wells ramping up
SXY reported a jump in production from its Phase 2 wells in the Western Surat Gas Project (WSGP), with production reaching 2.7 TJ/d at the end of the March quarter and still growing towards their plateau rate. The average performance from the Phase 2 wells remains on track with SXY expectations. We await the setting of SXY's FY19 capex budget to see the pace of development from here for WSGP.
We note SXY could press on with Phase 3 (30-50 wells) and ratchet up production from WSGP quickly, or prioritise development of Project Atlas and set a more gradual pace at WSGP.
Right kind of value proposition
Senex Energy is making tangible progress on enhancing the value proposition on offer in each of its three key projects (WSGP, Project Atlas and Cooper Basin). While our valuation and share price target remain unchanged, ongoing progress is starting to put upside pressure on our base case assumptions.
Set within an east coast gas market that faces the risk of an expanding supply shortfall, we still see SXY as offering attractive value with corporate appeal and maintain our Add recommendation.
The key risk to our call remains the oil price.
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Disclaimer(s): Morgans Corporate Limited was a Participating Broker for the Block Trade of shares in Senex Energy Limited and received fees in this regard.
Analyst owns shares.
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