POSCO in discussions to acquire Senex. Discussions have been in progress for some time, with prices of $4.00, $4.20 and now $4.40 a share.

My valuation is $4.50 assumes they deliver the growth to the 60PJ target by end FY25, which is not yet locked into broker vals.

Sold my entire holding this morning at $4.34, given that there is significant risk transaction will not proceed and SP would fall back significantly in that event. My valuation also does not account for the apparent "climate change" increase to cost of capital impact all the hydrocarbon sector compared with historical valuations.

This is a great little small cap, and if the talks fall over, I would consider acquiring again at $3.75.

This has been a great investment for me IRL, having entered at $0.255 in late Feb-20.

ASX Announcement on Transaction Discussions

Some notes from investor call:

Without repeating what you can read for yourself in the ASX release and slides, there was a lot in the commentary on the investor call that should help drive uplift in valuations by giving further colour to the numbers:

• Growth projects to take production from 19PJ to 54PJ are defined, with capex in line with pre-existing economics for the most recent Atlas expansion, FID'd 2 days ago.
• Remaining growth to end of FY25 of +6PJ totalling 60PJ have a range of potential sources: a) debottlenecking via electrification to free up reserves, b) appraisal of the 3P resources; c) reserves from deals with adjacent third party acreage d) Artemis and Bowen. In summary, that's a lot of optionality with ample time to select the most economically attractice, so I expect analysts to de-risk this growth.
• Economies of scale in incremental expansions, particularly tolls through 3rd party compression as fixed costs are sunk and paid for
• Generally, good cost control in operations, e.g., sustaining capex
• Improving confidence on subsurface (reservoir) "our models are generally conservative" which we see in "lower capital and operating cost". They get better at this as they have more history to match.
• Tightness of the East Coast gas market, particularly from FY23 out, there SXY has a large unconstracted exposure (e.g. opportunity)
• Laser focus on FCF generation and dividend growth.... "a low risk investor proposition for our large retail shareholder base"

I expect decent valuation model updates over the next few days, which will drive SP. Who knows, maybe more will get closer to my $4.50 valuation.

Ian Davies: "We've got the runs on the board, and we're putting more runs on the board."

Going forward, SXY will release its sustainability report, where they will more to say about energy transition. However, Ian gave some early insights:

• CSG is low Co2 compared to other gas
• Gas is low compared with other hydrocarbons
• Electricifcation can further reduce their footprint
• Gas is required under all scenarios until well beyond 2050 (both LNG and domestic)

I continue to be very happy with my holding and, in RW, increased my position by 20% with a few sneaky buys at $3.04 and $3.05.

SXY remains a strong buy for me.

Senex delivers strong full-year production and earnings growth, increases full-year dividend.

Senex Results Release

Great results: production growth, FCF growth, earnings growth, dividend growth underpinned by a growing resource base. Eventually, the market will wake up as the track record unfolds.

In an earlier post, I highlighted the strength of SXY strategy to grow production from 19PJ/yr to 60PJ/yr by end FY25. The roadmap on p2 of the release shows how this will be achieved, via defined incremental expansions of existing hubs (i.e. low risk) up to 54PJ/yr. That leaves only  6PJ/yr to be found from other sources which will be at higher risk, and subject to appraisal... still, there is time for this to be worked up because the projects themselves have a shorter leadtime that the norm in this industry.

SP currently 15% off recent highs, so a great little company for those interested in resource stocks. 

[DIsc. I hold on SM and RW. My 12m price target is $4.50]

Senex annouces FID of Atlas expansion:

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02407584-2A1315903?access_token=83ff96335c2d45a094df02a206a39ff4 

This is the next increment in the plan to raise production from 19PJ FY21 to 60PJ by end of FY25, most if not all from the existing 2P reserve base around the Atlas and Roma North hubs. SXY paid its maiden dividend last year, has a strong balance sheet and free cash flow. A good management team under Ian Davies has proven its ability to deliver and all the growth is low risk, albeit with some subsurface uncertainty. However, the 2P reserves base is so large that there is a lot of in-built optionality.

Current consensus is at a premium of c 25% to current SP, however, as the analysts do not have line of sight to all the projects that get from 19PJ to 60PJ, not all the planned growth is valued. I estimate that only growth to about 35-40PJ is priced in.

I will post a proper valuation shortly, however, I consider SXY to be worth over $4.50 in the base case. A great resource stock if you have a 2-3 year horizon.

[Disc: I hold on SM and RW]

31-Mar-2021:  SXY shares had a 1 for 8 share consolidation effective today, so although it might look like the share price rose by over 700%, it actually didn't.

If you held 40,000 share yesterday (Tuesday), they closed at 36c/share, so your position was worth $14,400.  Today, you would instead own 5,000 shares worth $2.90 each, so the market is valuing that position today at $14,500, so in real terms SXY has actually risen today by a much more modest +0.7%.

[I hold Senex Energy (SXY) shares in my SMSF.]

• Surat Gas production reaches 50 TJ/day (>18 PJ/year): With Atlas achieving a daily rate above 30 TJ after quarter end, peak daily production for our Surat Basin assets reached 50 TJ/day

• Surat Gas quarterly production up 16% to 4.3 PJ: Atlas ramp-up continued with production increasing 31% for the quarter (up 225% on the previous December quarter) and tracking to initial nameplate capacity (32 TJ/day).

• Sales revenue up 26% to $27.9 million: Increased revenue due to higher production volume and improved realised pricing for oil-linked Roma North natural gas production.

• Sale of Cooper Basin business to Beach Energy: Sale to Beach in November 2020 for $87.5 million strengthens Senex’s balance sheet and cashflow resilience. Completion is expected in Q3 FY21.

• Additional customer contracts signed: During the quarter additional customer contracts were signed for more than 6 PJ over CY 2021 and 2022.

• Roma North expansion enters FEED: FEED activities commenced for the expansion of the Roma North field to 48 TJ/day (~18 PJ/year).

Disc: I have small holding

https://www.senexenergy.com.au/wp-content/uploads/2021/01/2167306.pdf

05-Nov-2020:  Senex growth transformation - Investor Briefing

Senex growth transformation: Investor Briefing

Senex Energy Limited (Senex, ASX:SXY) today announced its growth transformation is delivering balance sheet strength, cashflow resilience, dividends and production growth following the $87.5 million sale of its Cooper Basin business to Beach Energy and successful delivery of its $400 million Surat Basin natural gas development projects.

Senex today, via its Investor Briefing, outlined further details of its growth transformation through to FY25:

• Senex’s core focus is on cash generation, balance sheet strength, shareholder returns and low-risk highreturn growth;
• Sale of the Cooper Basin business to Beach Energy for $87.5 million provides cashflow stability for dividends and accelerated Surat Basin production growth;
• Following the Cooper Basin sale, Senex to fully de-lever to a proforma net cash position of ~$30 million ($155m cash on hand)*, with an ongoing leverage policy targeting 1.0x Net Debt:Adjusted EBITDA through the cycle;
• Annual EBITDA of $85-95 million and free cashflow of $40-60 million per annum from Foundation Asset Base**;
• Commencement of dividends from FY22 from strong and resilient natural gas production cashflows, with Senex’s dividend policy to target a 20-30% payout of free cashflow***;
• Targeting annual production of >10 mmboe (60 PJe) by end FY25 from best-in-class project execution.

Speaking at the Company’s Investor Briefing, Senex Managing Director and CEO Ian Davies said “The sale of our Cooper Basin business will strengthen our balance sheet and cashflow resilience, allowing us to accelerate production growth from our material Surat Basin natural gas asset position and commence dividend payments to our shareholders from FY22.

“Senex’s growth transformation has created a natural gas business with a robust balance sheet and a strong and growing production profile.

“Senex has more than 300 petajoules of natural gas contracted under firm contracts to domestic customers with strong fixed prices, and GLNG which features material downside protection to low oil prices with full upside participation to oil price recovery.

“Following successful delivery of our $400 million Surat Basin natural gas developments, we are uniquely positioned to increase supply of natural gas through our established hub-and-spoke infrastructure operating model,” Mr Davies said.

Notes:

1. (*) As at 30 September 2020, on completion, and before transaction completion adjustments
2. (**) Foundation Asset Base refers to Atlas gas assets at 12 PJ/year (32 TJ/day) nameplate capacity and Roma North gas assets at 9 PJ/year (24 TJ/day) nameplate capacity; plateau production and earnings targets expected during H1 FY22 following Roma North expansion
3. (***) Free cashflow is Operating cashflow less principal payments for lease liabilities, less sustaining capital expenditure

The Investor Briefing webcast can be accessed via the Senex company page on the Open Briefing website: https://webcast.openbriefing.com/6690/.  A recording of the webcast will be available via the same link.

A copy of the Senex Energy Investor Briefing slide pack is attached.

--- Please click on the link at the top for the full announcemet including the slide pack ---

[I hold SXY shares.]

10-June-2020: www.energynewsbulletin.net/development/news: Senex takes a victory lap as Surat gas project complete

To see my straw on SXY's announcement to the ASX today about this, click here.

Senex takes a victory lap as Surat gas project complete

After almost two years Senex Energy is celebrating today as it has finally completed its $400 million, 80 well Surat Basin drilling campaign. 

Senex reached a final investment decision on the project in October 2018 after being awarded the acreage in 2017 under the Queensland government's first domestic acreage round.

[click on top link for more]

Disclosure:  I hold SXY (Senex Energy) shares.

Further Reading:  https://www.qld.gov.au/__data/assets/pdf_file/0020/108452/western-surat-gas-project-ias.pdf

10-June-2020:  Senex completes $400m transformational Surat gas project

Senex completes transformational $400 million Surat Basin natural gas development project

Senex Energy Ltd (Senex, ASX: SXY) today announced the successful completion of its 100% owned Surat Basin natural gas development project, establishing Senex as an important supplier of gas to the domestic market.

Senex has now completed its 80 well Surat Basin drilling campaign, down from ~110 wells originally planned due to continued production outperformance.

In conjunction with its infrastructure partner Jemena, Senex has also successfully built and commissioned natural gas facilities at Roma North and Atlas, delivering greenfield gas processing infrastructure capacity of more than 20 petajoules (PJ) a year. 

Senex Managing Director and CEO Ian Davies said its Surat Basin natural gas development project was executed superbly, with strong support from partners and stakeholders.

“In October 2018, Senex reached its Final Investment Decision for this $400 million capital program. Less than two years later, Roma North and Atlas have been successfully delivered – an industry leading achievement and a credit to all involved.

“We are proud to have worked closely with our partners Jemena and Easternwell, landholders, community and other stakeholders to successfully develop these critical natural gas resources for the east coast market. 

“Further, we are appreciative of the strong policy settings of successive Queensland Governments, enabling the development of these valuable resources.

“With proved and probable (2P) natural gas reserves in excess of 600 PJ across our Surat Basin acreage, Senex will be delivering natural gas to the domestic market for decades to come,” Mr Davies said.

Roma North has been consistently producing above nameplate capacity at around 18 terajoules per day (TJ/day). Atlas production has exceeded 15 TJ/day and continues to increase steadily towards nameplate capacity of 32 TJ/day, with an additional 8 TJ/day of installed capacity available. Initial water treatment facilities at Atlas have been commissioned, with final construction completion expected in early FY21. 

--- ends ---

Disclosure:  I hold SXY shares.

Other recent announcements:

16-May-2020:  Roma North gas for domestic market. FY20 guidance upgrade

14-May-2020:  Senex and CleanCo Queensland sign new gas sales agreement

26-May-2020:  Roma North gas for domestic market. FY20 guidance upgrade

SXY closed up +20% today (up 4c to 24c) on the back of this.  The upgrade to production and FY20 EBITDA guidance is relatively small, but any positive news in the current environment is going to send a company's SP higher, particularly on an "up" day (risk-on day) like today.

I hold SXY shares.  Within energy, I much prefer gas companies to oil companies, particularly those with exposure to Australian domestic natural gas demand.

From the announcement today:

Senex and GLNG to supply Roma North natural gas to the domestic market; Senex FY20 guidance upgraded 

Key points:  

• Senex Energy Ltd (Senex, ASX: SXY) and GLNG have agreed a short-term re-direction of around  1 PJ of natural gas from Roma North to the domestic market.
• Re-direction follows GLNG’s currently lower LNG offtake requirements and material production outperformance at Roma North.
• Surat Basin production continues to perform strongly, currently producing above 34 TJ/day; Atlas drilling campaign further reduced.
• FY20 guidance upgraded: production guidance increased to 2.0 – 2.1 mmboe (previously 1.8 – 2.0 mmboe); EBITDA guidance increased to $45 – 55 million (previously $40 – 50 million). 

 
Part of Roma North gas production to be re-directed to domestic market

Senex will reduce natural gas supply to GLNG by around 1 PJ over the period June to August 2020 at GLNG’s request, following currently lower LNG offtake requirements at GLNG.

Senex and GLNG have agreed to re-direct these volumes to the Wallumbilla natural gas supply hub. Senex will market this natural gas, together with higher than expected production from Atlas, to east coast gas customers as a part of its supply portfolio. 
 
Continued production outperformance and further reduction in Atlas drilling campaign

Natural gas production continues to outperform at both Roma North and Atlas in the Surat Basin, with production now exceeding 34 TJ/day. Given continued production and reservoir outperformance, Senex will further reduce the number of wells to be drilled at Atlas to 45 wells from 50 wells (previously reduced from 60 wells). Additional wells to maintain plateau production are to be drilled in the next campaign.

Senex expects to complete the current drilling campaign in the coming weeks, with final wells to be brought into production during June 2020. Atlas water infrastructure is also on schedule to commence commissioning and water intake in June, with completion of all works expected in early FY21. 
 
FY20 production and EBITDA guidance upgraded 

Following strong production performance across Senex’s Surat Basin assets, and assuming continued normal operations in the current pandemic environment, Senex has increased its full year FY20 production guidance to 2.0 – 2.1 mmboe (previously 1.8 – 2.0 mmboe). Senex has also increased its full year FY20 EBITDA guidance to $45 – 55 million (previously $40 – 50 million).

Comments from Managing Director and CEO

Managing Director and CEO Ian Davies said, “In October 2018, Senex reached the Final Investment Decision for our $400 million capital program in the Surat Basin. Less than two years later, the transformational Roma North and Atlas natural gas development projects have established Senex as an important producer of gas for the east coast market. 

“Today, together with our infrastructure partner Jemena, Senex has successfully constructed 56 terajoules a day of gas processing capacity, drilled 78 wells of the 80 well campaign, built a portfolio of high-quality domestic gas customers, and seen gas production increase rapidly to a current rate of more than 34 terajoules a day. 
 
“Our announcement today of an increase in full year FY20 production and EBITDA guidance further reinforces the underlying strength of our transformed east coast natural gas business and our ability to adapt and grow in the current lower oil price environment”, Mr Davies said.

--- ends ---

In this space (increasing Australian domestic natural gas demand exposure), I hold COE, SXY & BPT.  I also hold WPL, but Woodside is mostly a gas exporter now, rather than a domestic supply story.  Have a look at the graphs of those companies and have a bo-peep at the levels they got down to in March, only two months ago.  And Yes, I was certainly buying in March!  COE (Cooper Energy) even gave us another chance to pick up their shares at similar levels in May (THIS month), but they have already rallied +18% from that 36 cps May low to close at 42.5c today.  If the long term value and price drivers still remain in place, be greedy when others are fearful.  Who was it who said that?  Probably Buffett.  And probably Ben Graham before him.

11-Mar-2020:  Senex delivers transformational growth - Investor Briefing

02-March-2020:  Surat Basin operations and hedging program update

Senex Energy Ltd (SXY) has successfully completed the current Roma North drilling campaign with industry leading cycle times and well costs achieved. Senex is in a very strong financial position with around two thirds of oil production hedged at US$70/bbl (A$95/bbl). 

Key points:

• Current Roma North campaign completed; 35 wells drilled at industry leading cycle times and well costs. 
• Easternwell Rig 27 re-mobilising to Atlas; drilling to re-commence this week with campaign to be completed by the end of FY20.
• Surat Basin gas production continues to outperform and track towards initial plateau production of 18 PJ/year; number of wells required to reach initial plateau production under review with potential for reduction.
• Strong financial position and oil revenue outlook; $123 million of cash reserves as at 31 December 2019 and around two thirds of oil production hedged at an average price of US$70/bbl (A$95/bbl).  
• More than 300,000 barrels of FY21 oil production hedged at an average price of US$67/bbl (A$90/bbl). 

Managing Director and CEO Ian Davies said Senex’s work programs and project execution remain firmly on track despite a volatile market backdrop. 

“We are very pleased to have successfully completed the current Roma North drilling campaign. With production nearing the plant’s initial capacity of 16 TJ/day, we are currently reviewing requirements for future drilling.

“We are now focused on completing the Atlas drilling campaign by the end of FY20. Atlas production continues to ramp, with 95% of expected volumes for calendar year 2020 contracted to high quality customers at fixed prices.

“Senex is in a very strong financial position, with revenue well protected from oil price declines through a proactive and material oil hedging program strong fixed price gas contracts from Atlas,” Mr Davies said. 

--- click on link above for the rest of the announcement ---

Disclosure:  I do hold Senex Energy (SXY) shares.

20-Aug-2019:  Senex have reported today, and also released a reserves statement and a corporate governance statement; all-up they've released 6 different items this morning - and they can all be reached from here:

https://www.senexenergy.com.au/investors/announcements/

The main three are:

FY19 Full Year Results Presentation

FY19 Full Year Results and Reserve Statement

FY2019 Annual Report

---

https://www.senexenergy.com.au/

Disclosure:  I hold SXY shares.

12-Nov-2018:  Senex has presented at the Morgans Energy Conference - see here

The presentation is titled:  "DRIVING GROWTH WITH GAS"

They have also announced today that construction has begun at their Roma North gas project - see here