New Financing Boosts Outlook For Senex Energy

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Senex Energy's Surat Basin projects have received a boost from the securing of a senior debt facility.

-Infrastructure agreement key to increased pace of development
-Corporate appeal likely enhanced by further growth in reserves
-Risk of an equity raising now significantly reduced
 

By Eva Brocklehurst

Brokers are increasingly positive about the promise in Senex Energy's ((SXY)) Surat Basin projects as an attractive debt package has been secured to further de-risk development.

The company has an underwritten $150m debt facility to fund the development of Atlas and WSGP projects in the Surat Basin. Morgans is impressed with the terms of the facility, which is cheaper and longer duration versus expectations.

Flexibility is also a positive, as the debt can be increased or repaid early without any penalties. The 6% interest rate steps down towards 5.5% post development completion. Ord Minnett suggests the new facility is a key milestone as it provides sufficient funding for both development projects and alleviates concerns over any equity raising.

Canaccord Genuity, for modelling purposes, assumes $135m in capital expenditure in FY19 and that the WSGP processing is developed on balance sheet. The company remains in discussions with infrastructure providers for gas tolling services for WSGP.

The broker anticipates success in this regard would be accretive to project returns and potentially free capital to increase the pace of development. Canaccord Genuity, not one of the eight monitored daily on the FNArena database, includes 2c per share in valuation for reserve upside at Atlas.

While the quality of the WSGP asset remains subject to conjecture, the broker believes Senex is increasingly comfortable with its potential, particularly given the recent performance of GLNG's neighbouring Roma field. Canaccord Genuity has a Buy rating and $0.54 target.

In addition to attractive organic growth Morgans also envisages corporate appeal in the stock that will be enhanced by further growth in reserves.

Atlas

Citi is more comfortable, following a review of the geology around Atlas, regarding the ability to unlock target reserves, and does not believe the share price has fully incorporated the extent to which these reserves can increase. As a result, the broker upgrades to Buy/High Risk from Neutral/High Risk.

The 2P reserves in hand of 144PJ are well below the company's aspiration of 278PJ, which is predicated on drilling wells with commercial flow rates in the south-east of the block. Citi believes the quality of the coal seams in the south-east corner territory are not likely to deteriorate relative to those used in the current 2P reserves. Generally, the coals are a little deeper and lower quality but this appears to the broker to be a minor consideration.

Project De-Risking

The senior secured debt, along with the $67m cash on hand, a $43m gross carry by Beach Energy ((BPT)) in the Cooper and cash flow from production assets, provides the liquidity the company requires to push through its growth strategy. This should mean first gas from Atlas is ensured in late 2019 as well as sanctions for the next phase of WSGP and further drilling on the Western Flank.

Citi considers the infrastructure deal with Jemena and the new debt facility act to de-risk Queensland CSG in terms of the funding, scale and schedule. The broker improves its risk weighting for the Atlas to 90% from 75% and believes the risk of an equity raising, outside of M&A, has eased.

The company has highlighted that this is the first time senior debt has been secured for CSG acreage in Australia. Morgan Stanley agrees the risk of an equity raising is significantly reduced in the near term, although this cannot be ruled out completely, particularly should there be delays associated with development expenditure. The broker places the majority of its valuation in the undeveloped assets, so the key to stock performance remains delivery on these projects.

Production of 0.27mmboe in the June quarter was 33% above Citi's estimates and, in addition to the changes in modelling for Atlas, now forecasts Growler production will be higher for longer.

The database shows five Buy ratings and one Hold (Morgan Stanley). The consensus target is $0.50, signalling 7.1% upside to the last share price.

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