Senex Energy: Harvests cash from Roma North plant

About the author:

Adrian Prendergast
Author name:
By Adrian Prendergast
Job title:
Senior Analyst
Date posted:
19 June 2019, 12:08 PM
Sectors Covered:
Mining, Energy

Sells gas plant to Jemena

Senex Energy (SXY) has announced the sale of its Roma North gas processing facility to infrastructure operator Jemena for A$50m and a long-term tolling agreement. The gas plant is in its final stages of construction, which management previously flagged as a time where it might consider divesting it. The tolling agreement covers an initial approximate 6 PJ/a (16 TJ/d) at Roma North, with SXY holding an option to expand to approximately 9 PJ/a (24 TJ/d).

SXY also holds a provision for further modular expansion of the plant to approximately 18 PJ/d (48 TJ/d), which we see as likely in the long term.

Should remove any funding concerns

We have viewed SXY's recent share price weakness as, at least partly, reflecting some remaining concerns from some investors that it might require further funding to support its growth profile. Hence the gas plant sale and the unlocking of A$50m cash for SXY is significant. Note that we never agreed with the view that SXY might require further funding, given:

  1. The previous infrastructure deal with Jemena at Project Atlas;
  2. The major debt package secured on favourable terms; and
  3. The significant portion of near-term Cooper Basin production hedged at healthy prices.

Market undercooking growth profile

It is our view that the market is undervaluing SXY's organic earnings growth profile. While not offering a step-change in earnings from its new projects, production from SXY's flagship coal seam gas (CSG) projects (Project Atlas and Roma North) will steadily ramp up as the 110 new wells are drilled and the coals steadily de-watered. This means that SXY's earnings profile starts to look particularly attractive from FY21.

It remains our view that not enough of this future earnings platform is priced in, with the share price dragged on by oil price volatility and some lingering questions over funding – both of which will decline as a factor as development picks up pace.

Ticking off catalysts

Along with the additional gas sales agreements (GSA), the sale of the Roma North plant is a further positive catalyst supporting out positive view on Senex Energy (SXY). In the short term we expect the market to start to price in a greater portion of SXY's future earnings profile as it gains confidence around execution.

After adjusting for the gas plant sale and a mark-to-market on our oil price forecasts we have increased our share price target slightly (Morgans clients can login to view). We retain our Add recommendation. The key risk to our recommendation is execution risk.

More information

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

Disclaimer(s): A Director of Morgans Holdings (Australia) Limited, the holding company of Morgans Financial Limited, is a Director of Senex Energy Limited and will earn 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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