Oil and gas producer Senex Energy Ltd (ASX: SXY) today announced a moody looking 2016 results to investors.
Sales revenue plummeted 40% as production fell and the lower oil price bit hard. The big numbers look anything but stellar:
| Senex Energy Ltd |
FY15 |
FY16 |
% Change |
| Production (million boe) |
1.39 |
1.01 |
-27% |
| Sales Revenue (millions) |
$116 |
$69 |
-40% |
| Profit |
-80.6 |
-$33 |
59% |
| Earnings per share |
-7 |
-2.9 |
59% |
However there was some good news for investors with 2P reserves being revised up by a considerable 16.5% and operating costs falling to their lowest ever level at $28 per barrel, excluding royalties.
Financially too Senex is in a strong position. At the current price of 27 cents per share the company's cash pile makes up 33% of market capitalisation. But don't get too excited – the cash is earmarked for a very specific schedule of work which will transform the company heading into FY17.
All eyes on GLNG
Although Senex currently makes most of its revenue from oil, Senex's future is in gas. Almost 90% of Senex's total 2P reserves are in gas, completely dwarfing oil, and this is where the company is rapidly transitioning towards.
Interestingly, much of the transition will be supported by the giant GLNG project operated by Santos Ltd (ASX: STO). Senex has a binding 20-year gas sales agreement with the project which means it can focus on getting the gas out of the ground, while being supported by existing infrastructure.
Santos noted last week that it will be writing down US$1.5 billion of its share in the GLNG project and that it had been increasingly reliant on third party gas due to a slower-than-anticipated ramp up of production at GLNG.
It also revealed that the cost of this third party gas had increased – a positive sign for Senex in the short-to-medium term.
Outlook for FY17
Senex has issued a lower production guidance for FY17 of between 800,000 and 1,000,000 barrels of oil equivalent (boe), but says it is in a position to move quickly and ramp up production if there is a sustained oil price recovery.
Investors should be equally focused on the company's progress towards gas production however. Even though the mid-term outlook for natural gas pricing is poor, with supply expected to exceed demand, if you agree with some analysts that longer term demand will out-strip supply, Senex could be an appealing, if speculative, contrarian bargain today.
