Senex Energy — Entrusted East Coast gas supplier

Senex Energy — Entrusted East Coast gas supplier

Senex has a diverse portfolio of conventional and unconventional oil and gas assets in Australia’s Cooper and Surat Basins. Its growing portfolio of projects is well placed to deliver new gas to meet the shortfall along Australia’s East Coast. Projects are underpinned by existing recoverable gas resources and robust demand. Consensus expects continued growth in Senex’s underlying oil business, with revenues enhanced by a rising oil price, with gas sales from two projects in Queensland (Western Surat Gas Project and Project Atlas) driving a step change in production. We note that the consensus valuation of A$0.41/share (Bloomberg average) heavily risks the NPV of Senex’s development portfolio and compares to an unrisked consensus NPV of A$1.18/share.*

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Senex Energy

Entrusted East Coast gas supplier

Oil & gas

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8 February 2018

Price

A$0.37

Market cap

A$537m

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Share details

Code

SXY

Listing

ASX

Shares in issue

1.45bn

Business description

Senex Energy is a growth-focused oil and gas exploration company with onshore assets in Australia’s Cooper and Surat Basins. The company’s Cooper Basin oil asset is currently in production, while Cooper and Surat Basin gas projects are under development.

Bull

Deep reserve and resource base in a market with structural gas deficit.

Funding partners with robust balance sheets.

Entrusted by local government – ability to access resource at minimal consideration.

Bear

Uncertainty over precise capex profile and funding options.

Environmental approval and land rights processes can be onerous.

Tariff agreements with third-party infrastructure owners to be negotiated.

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Ian McLelland

+44 (0)20 3077 5700

Senex has a diverse portfolio of conventional and unconventional oil and gas assets in Australia’s Cooper and Surat Basins. Its growing portfolio of projects is well placed to deliver new gas to meet the shortfall along Australia’s East Coast. Projects are underpinned by existing recoverable gas resources and robust demand. Consensus expects continued growth in Senex’s underlying oil business, with revenues enhanced by a rising oil price, with gas sales from two projects in Queensland (Western Surat Gas Project and Project Atlas) driving a step change in production. We note that the consensus valuation of A$0.41/share (Bloomberg average) heavily risks the NPV of Senex’s development portfolio and compares to an unrisked consensus NPV of A$1.18/share.*

Selective investment across a diverse asset portfolio

Project Atlas was awarded to Senex by the Queensland government for zero consideration after a competitive tender process demonstrating the state’s confidence in Senex’s operational capability. Given the depth of the company’s portfolio, management is able to selectively invest available capital in projects that generate the highest risked returns, and has the benefit of pools of capital available from existing partners: EIG is looking to provide up to US$300m for WSGP and Beach (formerly Lattice) Energy’s c A$45m for unconventional gas exploration.

Scalable gas development projects

Senex’s two major development projects: WSGP with a 2P reserve base of 438PJ and Project Atlas with a P50 recoverable gas volume of 201PJ, provide visibility of a material step-up in gas production and net cash flow. WSGP’s project value is underpinned by a 20-year, oil-linked gas sales agreement with GLNG and drilling is likely to be scaled according to capital availability – the project can support up to 425 wells over a 20-year period. Project Atlas offers a high-quality resource base with multiple offtake options, targeting first gas for the domestic market in CY19.

Valuation: Gas developments remain heavily risked

The NPV of future cash flows from Senex’s development portfolio remains heavily risked by the market (consensus valuation of A$0.41/share vs unrisked NPV of A$1.18/share*). Key catalysts for this to be unlocked include environmental approvals for Project Atlas and WSGP (expected in mid-CY18), WSGP production ramp-up/sanction of Phase 3 drilling and finalisation of a financing solution. Successful exploration across the Cooper Basin’s western flank could also act as a catalyst for asset monetisation. Senex’s balance sheet remains robust, with a reported A$82m net cash position at 31 December 2017.

Consensus estimates

Year
end

Revenue
(A$m)

EBITDA
(A$m)

Net income
(A$m)

Net debt
(A$m)

Capex
(A$m)

Free cash
flow (A$m)

06/16

69.3

23.1

(0.1)

(102.5)

(25.7)

8.7

06/17e

43.6

0.6

(22.7)

(134.8)

(46.4)

(54.5)

06/18e

65.0

19.7

0.4

(43.8)

(91.0)

(99.1)

06/19e

97.3

37.9

9.3

33.4

(122.7)

(84.7)

Source: Bloomberg, Edison Investment Research. Note: *Unrisked consensus NPV is provided by the company.

EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2018]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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