Senex set for windfall

A TINY block of development-ready Surat Basin acreage handed to Senex Energy on a platter is set to reap the junior some serious cash as it develops is second major CSG project.

Senex set for windfall Ian Davies.

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Queensland's government announced yesterday that Senex was the successful tenderer for a Tier 1 CSG permit, and CEO Ian Davies said it was handed the permit for free in part due to his company's reputation for rapid development.
Davies said the new block would enable his company to materially expand its emerging gas business and develop a major new cash flow stream, with all the ingredients for a "very successful" gas project in place: a high-quality resource, a number of routes to market and very strong demand.
The subsurface geology is linked to extensive developments by QGC including Project Charlie nearby.
Detailed information made available during the tender process estimates the field contains P50 recoverable gas volumes of 201PJ of gas, though Davies told analysts it could end up a bit more, describing it as "very low risk from a materiality point of view".
Credit Suisse director Mark Samter said yesterday that while Senex's market capitalisation rose by $6 million yesterday for 200PJ of gas with a 20-year reserve life at 32TJpd, the junior would be making some "pretty serious cash margins" which should suggest NPV multiples of its current valuation.
"If you look back at the old multiples when we were first getting CSG off the ground it was $1.50/GJ 2P, which gives you a $300 million-plus equivalent valuation," Davies said. 
"Given our cost base, the top-tier acreage and the east coast market demand we're looking at very, very good margins on this acreage."
He was also confident of Senex's ability to cover full life cycle cash costs, with $1.2 million per well all-in costs achievable, even across 100 wells at 2-3PJ per well.
There are also multiple routes to market with the compression and pipeline infrastructure available, either through QGC and Woleebee Creek, Australia Pacific LNG to the south and APA to the east, just for starters.
"Part of the reason we were awarded the block is our speed to market. We'll move at lightning speed," Davies said.
"Built into the base schedule is building our own infrastructure which could be sub-optimal. I believe getting access to third-party infrastructure is eminently doable in this region."
Woleebee Creek has 660TJpd at capacity, though it has been running flat out of late with prolific production in the region.
Yet he said Senex has the ability to build its own infrastructure if required.
"If there is infrastructure ullage we'll seek to use it, if not we have the resources to build our own," Davies said. 
"We're very low cost, we've just gone to market for our own compression plant for the Western Surat gas project, so we understand the multiples and capex and opex required to run at 30-40TJpd plant, and we're quite comfortable with it. It's quite inexpensive.
"Given the project quality we have no concerns about our ability to fund the $200 million development, with its high-margin core oil business driving cash generation, and our longer-dated gas business in the Cooper Basin targeting material uncontracted resources.
"We engaged with multiple domestic gas users during the tender process and received expressions of interest for more than 150TJ/d of combined demand, customers which support hundreds of business indirectly."
Senex will engage those customers early next year, and expects to obtain regulatory approvals and the production license by mid-2018 and make final investment decision on full field development by the end of 2017 for first gas in 2019.
The acreage is capable of sustaining more than 30TJpd of production at plateau, though again Davies said that could even stretch to 40TJpd.
The Western Surat gas project will produce material volumes next year, and Senex will also be able to apply the same operating capability to the new acreage.
Senex has no plans to reduce the speed at which it is developing the Western Surat gas project, where 30 wells will come online by the end of 2017. 


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