Here's why Orca Energy Ltd shares jumped 80% on its Senex Energy Ltd deal

Senex Energy Ltd (ASX:SXY) has announced it'll acquire $2 million worth of assets from minnow Orca Energy Ltd (ASX:OGY) and separately undertake oil price hedging agreements.

Owen Raszkiewicz

Owen Raszkiewicz is a Motley Fool Contributor. Owen has been a Contributor since 2013, having also spent time as a Fool writer/analyst. He also worked as an Investment Analyst at Zenith Investment Partners, Australia's top research house specialising in managed funds. Owen has appeared on Channel 10's The Project and was invited on the BBC. He holds a Masters of Applied Finance, Masters of Financial Planning, Bachelor of Technology, Advanced Diploma of Financial Services and Diploma of Mortgage Broking Management. In addition, Owen has passed Level 1 of the Chartered Financial Analyst (CFA) Program. He has taken the Banking + Finance Oath (BFO). When he is not writing, Owen is Managing Director of Rask Finance, an Australian financial education company. You can email him: [email protected].

Published March 13, 2015 4:26 pm AEDT

Shares of Cooper Basin oil and gas producer, Senex Energy Ltd (ASX: SXY), have drifted mostly sideways today despite the announcement of a hedging program and the acquisition of assets from Orca Energy Ltd (ASX: OGY).

Senex pays up for downside protection

Senex Energy today announced it had undertaken an oil price hedging program which will allow one million barrels of production to be priced at a minimum of $US55 per barrel, up to a maximum of $103 per barrel.

The cost payable for this protection is $US1.7 million but CEO, Ian Davies, says it'll provide much needed protection for financial year 2016 and enable the company to allocate capital with confidence.

"Senex will maintain its strong financial position and has further moved to protect its balance sheet in this volatile oil price environment," he said.

Over the past year, Senex shares have fallen as much as 57% as the oil price continues to plummet. According to Bloomberg, Brent Crude is currently priced at $US57 per barrel.

Senex agrees to buy Orca Energy interests

In a separate ASX announcement, Senex said it had agreed to buy three production and exploration interests from oil and gas minnow Orca Energy for $2 million.

In exchange for the cash, Senex will receive Komodo Energy's (a fully owned subsidiary of Orca) 20% interest in petroleum production licences (PPL) 251 and PPL117, as well as Orca's 20% interest in petroleum exploration licence (PEL) 110.

Settlement is expected to occur on or before 31 May 2015. Today's deal follows Senex's decision in 2013 to buy a 20% interest in Orca's PEL115.

Should you buy Orca and Senex Energy shares?

Given the subdued outlook for oil prices, now is probably not the time to buy Senex Energy shares, and with a market capitalisation of approximately $4.4 million, Orca Energy is very speculative. However, it's worth noting that after today's deal Orca will have around $5 million in cash – that is, more than the market value of the entire business. Broken down, management say its equivalent to 1.1 cents per share. Orca currently trades at 0.9 cents per share.

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