Yes its true even if we ignore the resource side SXY have managed to look good on a value basis alone. Which is crazy often the time lag (which is substantial) between CAPEX and cash flow causes these stocks to look terrible.
But SXY have managed to bring that cash flow forward by a combination of excellent luck and management with revenue and targeting the oil, which just so happened to increase in price at the right time...
If our dollar went back up and or the oil price down the picture wouldnt be so pretty despite hedging. But the awesome thing is its unlikely right now because the key thing that might cause a drop in oil right now is a drop in China , and that would probably smash our dollar harder then the oil price drop...
So its a bit of a bright sunny day moment and they need to use this time to get ahead of the costs curve...
Normally a company like this would struggle to get ahead of the curve so fast. Especially with a big acreage position. But they have been dealt a stroke of amazingly good timing to hit an oil window that brings forward cash flow with its faster development and better margins.
The story on Senex changes dramatically for the worse if they cant get production of new wells and fields online before the currently producing ones dry up and thats a story to watch closely.
On the flip side if they can use this window of opportunity to bring many more wells online before the oil dries up it could be an absolute game changer for senex.
Infact to me what makes senex so attractive over BPT and DLS is that in the last 12 months with the oil production driving immediate cash flow and with the oil price driving a lift in profit , it has turned a company that would normally plod along trying hard to develop a huge acerage into one that now looks to be ahead of the costs curve by a very healthy margin. And its this margin between the cost curve and where they are that will in my amateur opinion be the game changer that allows SXY to develop and develop much faster then they otherwise would have been able to do.
Generally with companies that have this proportion of thier acerage undeveloped the only way they can develop it is wait a massive time frame till the get increasing cash flow very slowly, or they farm out at ridiculous percentages and lose the value of the acreage in the process. But this short term cash flow allows SXY to do its own development and farmout on much better terms as it has enough cash to contribute to development...
I can honestly say in the 15 years i have been heavily involved in this game and very successfully, ive not seen a company with this sort of quality and acreage in this cash flow position. Its not without huge risks, but it is shaping up very very nicely at present.
Ive seen plenty of much smaller companies with this position , but usually by this size the market has priced them out of anything that i would want to buy, because it normally prices the potential out of them...Where as this one i see the security of profit already and cash flow, but with massive potential. And thats an unusual thing to see on a company this size.
SXY Price at posting:
77.5¢ Sentiment: LT Buy Disclosure: Held
