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]