Analysts say Senex bid mostly hot air

ANALYSTS yesterday downplayed speculation of an imminent bid for Cooper Basin oil and gas producer Senex Energy, although interest in its shale gas potential remains high.

By InvestSMART · 18 Jan 2012

By InvestSMART ·
18 Jan 2012

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ANALYSTS yesterday downplayed speculation of an imminent bid for Cooper Basin oil and gas producer Senex Energy, although interest in its shale gas potential remains high.

Senex shares have jumped 32 per cent this year and hit a 12-year high of 90? yesterday morning, based on media reports that AGL Energy, French oil giant Total or others might bid for the $774 million company.

Last week Senex told the ASX there was no unannounced information that would explain the share trading and pointed to a string of reports in The Australian Financial Review and the company's inclusion in a list of top takeover targets for 2012, compiled by broker JPMorgan, based on its "huge 75 to 100 (trillion cubic feet) of shale gas-in-place".

The managing director, Ian Davies, said last year Senex had held initial talks with international energy producers interested in a potential partnership.

But RBC Capital Markets analyst Andrew Williams said yesterday: "You never say never on these things but my personal view is, if you're an acquirer, you probably want to see a bit more work on the ground."

Mr Williams said that while Senex had the largest net exploration acreage for unconventional gas in the Cooper Basin in South Australia, it had only drilled one well, Vintage Crop-1, which gave encouraging results but was neither fracked nor flow-tested.

On January 6, Senex announced the start of a three-well drilling program to assess the unconventional gas potential of the shales, tight sands and coals in its Cooper Basin permit area.

Mr Williams said while there was excitement about the potential for a large unconventional gas resource at the Cooper Basin, only three wells had been drilled there so far, including Senex's Vintage Crop.

The other two - Holdfast-1 and Encounter-1 - were drilled by Beach Energy, fracked and flow-tested at 1.8 million cubic feet per day.

About 20 more wells would be drilled this year by Senex, Beach and the Cooper Basin joint venture operator Santos, Mr Williams said.

RBS Morgans analyst Roger Leaning said Senex could be a first-mover in Cooper Basin shale, which was especially attractive because the province was well-known, pipeline infrastructure was in place and coal seam gas extraction was facing increasing regulatory hurdles.

For Senex, he said, the "blue sky is potentially the market cap plus again but it's very early stages".

Senex shares closed down 1? to 84? after profit-taking, analysts said. Senex, which gave a separate update on its Growler oil exploration program yesterday, and AGL Energy declined to comment.

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Frequently Asked Questions about this Article…

What caused the recent jump in Senex Energy shares and takeover speculation?

Media reports that companies such as AGL Energy and French oil giant Total might bid for Senex, plus the company’s inclusion on a JPMorgan list of top takeover targets based on large shale gas-in-place estimates, drove investor interest. Senex shares have risen strongly this year (about 32% year-to-date) and hit a 12-year high, although Senex told the ASX it had no unannounced information to explain the trading.

Is a Senex takeover bid imminent according to analysts?

Most analysts downplayed the likelihood of an imminent bid. RBC Capital Markets’ Andrew Williams said acquirers would likely want to see more on-the-ground work—such as fracking and flow-testing—before making a move, while noting you “never say never.”

How big is Senex’s shale gas potential in the Cooper Basin?

Senex was highlighted for having very large shale gas-in-place estimates on the JPMorgan list—reported at about 75 to 100 (trillion cubic feet) of shale gas-in-place—and it holds the largest net exploration acreage for unconventional gas in the Cooper Basin.

Has Senex proven its shale gas wells are commercially productive?

Not yet. Senex had drilled one well, Vintage Crop-1, which gave encouraging results but was neither fracked nor flow-tested. By contrast, two wells drilled by Beach Energy (Holdfast-1 and Encounter-1) were fracked and flow-tested at about 1.8 million cubic feet per day. Senex announced the start of a three-well drilling program to assess unconventional targets.

Which companies were named in reports as potential bidders for Senex?

Media reports mentioned AGL Energy and Total among possible interested parties, and broker JPMorgan included Senex on a takeover-targets list. Senex and AGL declined to comment on the speculation.

What exploration milestones should investors watch for Senex?

Everyday investors should watch results from Senex’s three-well drilling program (including any fracking and flow-testing), official ASX updates, production or flow-rate figures, and the broader drilling activity in the Cooper Basin—about 20 more wells were expected this year from Senex, Beach and the Santos joint venture operator.

Could Senex be a first-mover in Cooper Basin shale gas and why does that matter?

RBS Morgans analyst Roger Leaning suggested Senex could be a first-mover in Cooper Basin shale, which is attractive because the basin is well known, pipeline infrastructure exists, and coal seam gas projects face increasing regulatory hurdles. Being first-mover could unlock significant ‘blue-sky’ upside, but it remains very early-stage.

How did the market react after the takeover and shale potential stories?

Following the takeover speculation and shale potential coverage, Senex shares had climbed sharply earlier but later fell back after profit-taking, closing lower at 84. The stock’s strong run this year reflected investor excitement, while analysts urged caution until more field data and testing are completed.