WHAT MAKES THE TAKE OVER GRADE?
Not every company can make the grade, as there is emerging a select – if not exactly spoken – criteria that whet the appetite of acquirers.
Firstly, it should have either access or the ability to access Australia’s east coast gas market.
As the east coast gas market settles down, and domestic marketing arrangements have been put in place in the wake of a forecast major gas shortage – avoiding the government triggering a mechanism which would have severely restricted gas exports – the market is beginning to look more positively on those able to feed into the eastern gas network.
Domestically, the future is positive as ongoing heatwaves will see demand for electricity remain strong in summer, and heavy investment into intermittent renewables – coupled with a decline in coal-fired power – means gas is becoming increasingly important as a peaking energy source.
Senex has exposure across all its major projects, which are located in the oil and gas-rich regions of the Surat and Cooper basins in Queensland and South Australia.
In the South Australian Cooper Basin, Senex holds around 15,000 square kilometres of oil and gas tenements.
Senex also has a tie-in with the now Beach Energy-owned Lattice Energy through its unconventional gas joint ventures, located relatively close to the Moomba gas interconnector and associated major oil and gas pipelines.
In Queensland’s Surat Basin, Senex has two major projects, the Western Surat Gas Project (WSGP) and Project Atlas.
At the fully-owned WSGP, Senex has net proven and probable reserves of 438 petajoules of gas.
It is aiming to supply about 50 terajoules of coal-seam gas to Santos’s GLNG operations daily – or around a petajoule of gas every three weeks – from its Surat Basin project over the next two decades.
Project Atlas is unique as it was the first acreage tendered by the Queensland government which is required to sell all gas produced on the domestic market.
It believes the project contains around 201 petajoules of gas and could produce around 30 terajoules a day, with first gas expected next year.
Senex’s guidance for the 2018 financial year is between 750,000 and 900,000 barrels of oil equivalent.
Potential targets should also have growth opportunities, so a focus on – and appetite for – exploration is key in order to lift supply.
As Shaw and Partners analyst Stuart Baker states, “there have been no big gas discoveries to rescue the supply side''.
“Despite the obvious crunch looming now for some years, the industry has only now responded as it takes time to mobilise the capital and plan the work programs required to drill, test, appraise, and develop the fields for production,” Mr Baker said.
“This can take years.”
Last year Senex was awarded a 58 square kilometre petroleum acreage in Queensland’s Surat Basin and was also granted funding for further exploration and drilling under South Australia’s Plan for Accelerating Exploration (PACE) Gas program for its Vanessa gas project in the Cooper Basin, as it seeks to continue expansion and production. Broker backing mounting
The disconnect between potential and value – similar to that seen with AWE and its Waitsia gas project – has brokers and analysts bullish on the company.
Credit Suisse’s view is that now is the time to make a move for Senex Energy.
It said that Senex’s Project Atlas has a higher enterprise value per proven and probable reserves ratio compared to AWE’s Waitsia gas project, stating that around 210 petajoules are yet to be included as reserves.
“We think that Senex offers spectacular value for corporates and equity investors alike,” Credit Suisse investor notes said.
“We are surprised to have seen such little reaction in the Senex share price to the material M&A activity over at AWE.”
In Morgans’ February Investment Watch, it also listed Senex as one of its high conviction stocks, which are companies it believes offers the best risk-adjusted return through 2018.
Wood Mackenzie oil and gas analyst Saul Kavonic said the gas merger and acquisition market will pick up in 2018, especially if it has access to the east coast market.
“Anyone with a proven or plausible gas project supplying into the tight east coast market will also become attractive, putting Senex on the radar,” Mr Kavonic said.
Citi Research also has faith in Senex’s wider Western Surat Gas Project, and the current management was also seen as a plus for investment.
“We see management’s stewardship of capital as excellent, which along EIG Global Energy Partners funding capacity should prevent dilutive equity raisings,” it said in investor notes.
However, Citi believes if Senex’s WSGP project follows the broader coal seam methane (CSM) trend of achieving production later than forecast then it may impact Atlas.
“The time taken for every other CSM field to achieve positive production/cost outcomes has exceeded investor patience,” Citi said.
“Any negative performance of WSGP may also affect market sentiment towards Atlas.”
However, it predicts the possibility of gas offtake contracting this year to support growth.
“Ultimately, it is still very early days for WSGP, and we note that there are often teething problems in bringing on coal seam methane fields, and so we caution investors that there may yet be bad news mixed in with the otherwise good news we expect over the next 6 to 12 months,” Citi said.
This year may be the year that Senex joins the ranks of AWE, Lattice Energy and Santos as a takeover target.
