The shares of junior oil and gas company Senex Energy Ltd (ASX: SXY) have enjoyed a rare bounce today following the release of its FY16 first half results.
The shares gained more than 12.5% in early trade before giving up some of the gains and are now trading at around 16 cents per share.
Some of the main points for investors to take note of from the results include:
- Production of 0.54 mmboe down 27% from the prior corresponding period (pcp)
- Sales revenue of $36.8 million down 47% from the pcp
- Average realised oil price of AUD $71 per barrel down 27% from the pcp
- Operating cost of AUD $27.8 per barrel down 11% from the pcp
- Underlying net profit after tax (NPAT) of $5.2 million up 225% from the pcp
- Operating cash flow of $25.1 million up 32% from the pcp
- Capital expenditure of $17.3 million down 67% from the pcp
- Cash balance of $99.6 million up 33% from the pcp
- Net tangible assets of 33 cents per share
- $69.7 million non-cash write-down on its exploration assets
From these results, it is clear that the lower oil price had a significant impact on revenues and earnings, but management has also done a solid job in protecting the company's balance sheet in a difficult environment.
Unlike its larger peers, Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG), Senex will not be required to raise fresh capital at highly dilutive levels anytime soon. The company has a cash balance of nearly $100 million, zero debt to service and a $77 million undrawn debt facility if required.
The balance sheet will also be protected for the second half with the company locking in a floor price of AUD $72 per barrel through a number of hedging instruments. This is well above the current spot crude price of around AUD $46 and well below the company's operating cost per barrel of around AUD $28.
Investors should note that Senex's reduced capital expenditure is likely to lead to lower production volumes over the short to medium term. The company has already reduced production by 27% in the first half and volumes are forecast to continue to remain lower in the second half compared to the pcp. While this may impact earnings in the short term, this seems to be a prudent strategy by management to conserve capital during a period of extraordinary volatility in the global oil market.
Outlook
Senex remains on target to achieve production of 1.0-1.2 mmboe for the full year, down from 1.39 mmboe the previous year.
Capital expenditure is expected to be between $35-45 million for the full year and the company expects to have a cash balance of $80 million at the end of FY16.
As with any price taker, it is nearly impossible to accurately predict a profit figure, although Senex should remain profitable during the second half as a result of its hedging program.
Foolish takeaway
Senex has strengthened its financial position in the first half of FY16 and remains well placed to grow when (or if) oil prices recover.
Although the company is trading well below its net asset backing, investors should note that Senex remains a high-risk, high-reward proposition and is only suitable for investors comfortable with high levels of volatility.
