Company Overview: Senex Energy Limited (Senex) is an oil and gas exploration and production company. The Company's segments include SURAT/BOWEN BASIN and COOPER/EROMANGA BASINS. The Company produces over one million barrels of oil annually from over 10 Senex-operated oil fields. The Company holds an acreage position across the South Australian and Queensland Cooper Basin, with approximately 15,000 square kilometers considered prospective for conventional and unconventional (tight) oil. The Company holds various interests, including the western flank of the Cooper Basin, as well as north, south and east of the Moomba processing and transportation hub. In the northern Cooper Basin, Senex is developing its Vanessa conventional gas field. Its Western Surat Gas Project is involved in the extraction of natural gas from coal seams over approximately 910 square kilometers of Senex permits, north of Roma in Queensland.


SXY Details
 
Senex Energy Ltd (ASX: SXY), an oil and gas company, seems to be positioned well with its key gas projects expected to transform into earnings in medium and long terms in view of the east coast gas market scenario. Project Atlas is anticipated to deliver good value in the future. Phase 2 drilling at West Surat gas project is also expected to provide encouraging operational results. A boost from gas sales agreement with GLNG amidst the oil price scenario is also expected to drive value.

Drilling at Western Surat Gas Project: Senex has completed the drilling at its Western Surat Gas Project under Phase 2 appraisal program, and will provide a further update on its progress in the Surat Basin in a separate announcement before the end of the calendar year 2017. The final three appraisal wells of a 30-well drilling campaign were drilled and completed during November 2017. SXY also indicated that two pods have been brought online with the final pod to be brought online in December 2017. Earlier, SXY had drilled 27 of 30 coal seam gas appraisal wells in its Phase 2 program. The drilling results from the completed Phase 2 wells, showed the net coal measurements slightly ahead of P50 estimates. The Phase 2 program for the Western Surat Gas Project focuses on appraising the coal seam gas production potential of the Walloon coal measures with an average well depth of around 430 meters. The company had brought the first wells of this campaign online during October and has been on track to bring all Phase 2 wells online by the end of 2017. The company is working to progress a raw gas sales agreement with GLNG for delivery of Phase 2 gas into existing Roma field infrastructure.
 

Drilling Activity for November (Source: Company Reports)
 
Awarded Surat Basin coal seam gas acreage: The Queensland Government has awarded 58-square kilometers of coal seam gas acreage to SXY, for nil consideration. SXY has named this project as Project Atlas, and will target first gas from the acreage in 2019, to be sold to domestic customers on the east coast of Australia. As per the tender, the acreage contains P50 recoverable gas volumes of 201 PJ. SXY currently expects to drill around 100 wells on the acreage to sustain gas production of over 30 terajoules per day at plateau. Moreover, SXY will engage with domestic gas customers in early 2018 with a view to signing gas contracts. The company has received expressions of interest from domestic customers totaling over 150 terajoules per day of combined demand. Further, SXY expects to obtain regulatory approvals over the Project Atlas acreage in mid-2018.

Financial Performance in September Quarter: The group in the September quarter of 2017 has reported 29% growth in the sales revenue to $12.8 million. The average realized oil price for the September quarter was A$80 per barrel due to the higher Brent crude oil prices and improved pricing achieved through new Crude Oil Sale and Purchase Agreements signed in late FY17. The average price received for oil sales is a function of the hedged price, which is adjusted for the hedge premium and for the timing impacts of oil sales revenue recognition. In the September quarter, the sales volume was 160,000 barrels, which was in line with the prior quarter, due to a strong performance on the Growler field as well as the initial contribution from Marauder-1 more than offsetting natural field decline. Further, SXY had hedged the majority of its production for FY18 through a number of put instruments that provide downside protection below US$50 per barrel. Moreover, in the September quarter, the capex was mainly related to the Phase 2 work campaign on the Western Surat Gas Project. The company is confident of completing the Phase 2 work program on budget, delivering installed wells at the target rate of $1.2 million per well. In the Cooper Basin, the capital expenditure was mostly incurred on drilling three wells, with facilities also constructed on the Marauder field to bring the oil exploration well online in September. Overall, SXY has a strong financial position with $110 million in cash as at September 2017, and is making good progress in terms of having financing solution to fund the development of the Western Surat Gas Project in parallel with Project Atlas. The company has planned to reduce the debt facility to $20 million, with part of that drawn for bank guarantees, leaving approximately $16 million of undrawn debt capacity. Further, the company is on track to achieve all key project milestones.
 

Sales for September Quarter (Source: Company Reports)
 
Production in the September quarter: Senex delivered a net oil production of over 180,000 barrels in the September quarter of 2017, which is 6% ahead of the previous quarter due to the strong contribution from Marauder-1, which was discovered in July and brought online in September. SXY’s annual net production guidance of 0.75 - 0.90 mmboe, will be primarily generated from the Cooper Basin western flank, as well as from the Vanessa gas field (expected to be online in H2 FY18).
 

Production Operations in the September Quarter (Source: Company Reports)
 
Cooper Basin Drilling Activity: The group was running a focused capital investment program in FY17 by prioritizing the spend on a small number of western flank drilling targets. SXY has made a Birkhead oil discovery at Marauder-1 in ex-PEL 104 (SXY 60% and operator). The well was brought online in September, 53 days after the decision to case and suspend, and is performing strongly. Moreover, SXY is progressing plans with its joint venture party to drill a horizontal well on the Growler field (ex-PEL104: Senex 60% and operator) later in FY18, to accelerate production and increase overall recovery from the field. Additionally, during the quarter, SXY had completed engineering work to deliver gas from the Vanessa field during FY18. The PEL 182 joint venture (where SXY holds 57% and operator) is progressing in cooperation with the Santos-operated Patchawarra East joint venture to bring stranded Cooper Basin gas assets to market. The Senex led project received $5.82 million in funding from the South Australian Government in July through the PACE Gas Grant Program. Further, the project involves the construction of two pipelines, expected to commence late in calendar year 2017. The gas from the Vanessa field will be transported down the existing flowline to connect with one of the new pipelines, to run approximately 18 kilometers between Moolion North and Coonatie.
 

Key Milestones for FY18 (Source: Company Reports)
 
Regulatory framework: The unresolved recommendation around cleaner energy was addressed while the group welcomed the Federal Government-endorsed National Energy Guarantee. They are seeking for a regulatory stability and connected energy policies for an affordable, reliable and sustainable energy. Gas remains a major part of the energy mix, supporting the transition towards a lower carbon future. This is the opportunity that the group is targeting with an objective to play an integral part in bringing that gas to market as cheaply and efficiently as possible. The group is well positioned under every regulatory scenario and has the right strategy and capability to realize the near-term potential in the east coast gas market.

Stock Performance: The group is the only independent energy company that brings material new volumes of gas to the market and is uniquely positioned to maximize the opportunities. The group aims to benefit from emerging opportunities and an eventual oil price recovery. Accordingly, they enhanced their Queensland gas portfolio, with strong performance from the Western Surat Gas Project, and by securing new top tier gas acreage named Project Atlas. Material gas production is on track for 2018. With strong cash generating oil business, the group is confident to achieve a year on year production and reserves growth. They have made capital plans for advance key projects, particularly the Western Surat Gas Project and currently Project Atlas. Moreover, they implemented a Share Purchase Plan to raise over $35 million of additional equity capital. The shares of SXY have risen 31.5% in the last three months as at December 05, 2017 though losing over 5% on December 06, 2017 likely owing to mining and energy sector driven headwinds. However, we believe the bullish momentum on the stock will continue in the coming months given the potential. We give a “Buy” recommendation on the stock at the current price of $0.335


SXY Daily Chart (Source: Thomson Reuters)

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