One company that is succeeding in the Cooper Basin is Senex Energy (ASX: SXY). Senex holds extensive conventional and unconventional oil and gas leases in the Cooper Basin as well as coal seam gas acreage in Queensland's Surat Basin.
In its February monthly report, the company stated that 22 of the 30 wells planned for FY14 have been drilled and 20 have been successful. It is too early to assess how the drilling results from these wells can fully be understood and appreciated as further testing is occurring. However, it seems to me that Senex's share of oil and gas reserves in the Cooper and Eromanga Basin will increase substantially from further drilling in the next few months.
Current oil production drove an increase in profit to $88.3 million for the last half, up 14% on the previous corresponding period (PCP). EBITDA was $41.9 million, ahead by 32% of the PCP. This improvement was due to high margin oil sales and fully funded growth with no debt.
The company's strategy is focused on continuing the success of oil exploration in the Cooper Basin with the intention of growing oil production. This will provide the funds to develop the long-term growth potential of coal seam gas reserves in the Surat Basin in Queensland.
Agreement has been reached with Origin Energy (ASX: ORG) for early commercialisation of substantial unconventional gas in the Cooper. Here Senex will retain majority earnings, yet most of the cost of development will be borne by Origin.
On 3 March, Senex signed a gas sales agreement with Santos (ASX: STO) for the supply of raw gas over two years from the Hornet gas field in the southern Cooper-Eromanga Basin. Senex Managing Director and CEO Ian Davies said the agreement demonstrated the company's commitment to increase the value of its Cooper Basin gas position.
Foolish takeaway
Senex is a profitable company with no debt and expanding oil and gas reserves. It has a market capitalisation of $900 million and that can only increase as the full potential of its leases are realised and developed. By forming partnerships with major players, such as Origin, Santos and Beach Petroleum (ASX: BPT), Senex has put itself in a strong position.
Of particular significance to shareholders are its excellent prospects for growth in the next several years. The most important development will come from its coal seam gas in the Surat Basis. This gas will be sold to the Australian east coast, where prices also are expected to increase. I have owned this stock in the past and am waiting for a 10% pull-back to buy it again. Even at 80 cents there is good long-term value with a price-to-earnings ratio of just 13.5 times.
