Senex Energy – Growth on all fronts

About the author:

Adrian Prendergast
Author name:
By Adrian Prendergast
Job title:
Senior Analyst
Date posted:
27 April 2018, 10:13 AM
Sectors Covered:
Mining, Energy

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.

More information

Morgans clients can login to view our detailed report and share price target for Senex Energy (SXY). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

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.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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