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Which is the better buy? Senex Energy Limited or Beach Energy Limited
By Owen Raskiewicz - April 9, 2014 | More on: BPTSXY


The long-term tailwinds for oil and gas are good. Unlike other commodities like iron ore, oil and gas are certain to be in equal or greater demand five or 10 years from now. That’s because we’re using more energy than ever before.

Companies such as Santos Limited (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and BHP Billiton Limited (ASX: BHP) are all testament to the huge potential posed by resources companies focused on the energy sector. Recently, Aurora Oil & Gas Limited (ASX: AUT) shareholders witnessed their investment in the mid-cap gas company jump 55% following a takeover from Canadian-based Baytex Energy Corp.

The good news for investors is there are still a number of mid-cap gas producers available on the Australian market. Two of which that are tempting at current prices are Senex Energy Limited (ASX: SXY) and Beach Energy Limited (ASX: BPT). Here are some of their key figures:

Senex Energy

Market Capitalisation: $807 million

Proved and probable reserves (as at 31 December 2013): 10.8 mmbls

Forecast FY14 oil production: 1.4 million to 1.6 million barrels (FY13: 1.25mmbls)

FY13 Reserve Replacement ratio: 319%

Debt at 31 December 2013: None

Cash and liquid assets at December 31 2013: $102.5 million

Price-earnings to growth ratio (using Morningstar’s analysts’ consensus EPS forecasts for FY14): 0.91

Beach Energy

Market Capitalisation: $2,159 million

Proved and probable reserves (as at 31 December 2013): 93 mmboe

Forecast FY14 oil production: 9.2 to 9.6 mmboe (FY13: 8 mmboe)

FY13 reserve replacement ratio: 100%

Total liabilities at 31 December 2013: $742 million

Cash and cash equivalents at 31 December 2013: $404 million

Price-earnings to growth ratio (using Morningstar’s analysts’ consensus EPS forecasts for FY14): 0.108

Foolish takeaway

Both companies represent a compelling investment case. Beach Energy’s earnings are expected to jump in FY14 on the back of increased production while reserves could also be anticipated to maintain their current levels thanks to an 86% success rate on the 58 wells it drilled in the first half of FY14. Although Beach looks likely to deliver greater shareholder wealth in the long-term, management have hinted at the possibility of using the company’s balance sheet flexibility to pursue “opportunities” in the future.

Senex Energy appears to be a great buy at current prices with no debt, increasing production and, perhaps most importantly, a rapidly growing level of reserves. Earnings may be more modest in FY14 (compared to Beach) but investors would be wise not to overlook this long-term emerging gas