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Senex ramps up gas spend as it turns to profit

Emerging east coast gas producer Senex Energy has flagged a significant increase in investment this coming year to lift supplies for the tight east coast market, laying the foundations for what it expects to be a major jump in output over the next two years.

Chief executive Ian Davies said investment in Senex’s Surat Basin projects in Queensland would reach about $150 million this year as construction work ramps up at the Roma North and Atlas projects. That compares with total capex of $127.8 million in 2018-19, including both Senex’s Queensland and Cooper Basin activities.

Mr Davies said the spending would “set the platform for a sharp rise in production, cash flow and earnings from FY21”.

Shares in Senex were up 7.9 per cent at 34¢ in afternoon trading.

Production at Atlas is quarantined for supply to domestic customers on the east coast, under Queensland government rules intended to increase supplies for local manufacturers and industrial gas buyers that have been hit by price increases in the past two years. Initial deals for the sale of Atlas gas have been signed with CSR, packaging company Orora and glassmaker O-I Australia. Senex has others in the works.

Senex, which has also been awarded the Artemis gas permit which is required to supply local customers only, is forecasting annual gas output will ramp up to about 18 petajoules, or about 3 million barrels of oil equivalent, by the end of June 2021. Gas production was 0.4 million boe in 2018-19.

The federal government earlier this month announced several measures to try to boost gas supply into the east coast market, including a potential national domestic gas reservation scheme.

Mr Davies said that as long as such a scheme was prospective rather than retrospective, he had “no problem with it whatsoever”. But he took issue with any move by the government to introduce a pricing trigger into the Australian Domestic Gas Security Mechanism to try to bring down prices, saying that would be “an absolute disaster” that would just chase away investment dollars.

“I don’t think that it’s warranted because the market is fully supplied by definition,” he said, pointing also to the several domestic gas sales contracts that have been announced in recent months.

The comments came as Senex posted a modest net profit for the full year of $3.3 million, a turnaround from the $94 million loss of 2018-19.

Underlying net profit more than trebled to $7.2 million in the year ended June 30, from $2 million the previous year. But JPMorgan analyst Mark Busuttil said the result was weaker than expected, well below both his estimate of $11 million and the consensus forecast of $9.5 million due to higher depreciation and exploration expenses.

Sales rose 34 per cent to $94 million. Operating cash flow surged nine-fold to $45 million, from $5 million.

Total production of oil and gas rose 43 per cent last financial year to 1.2 million barrels of oil equivalent, driven by an increase in output at Roma North, which supplies Santos’ GLNG export venture, and the start-up of the Vanessa gas field in the Cooper Basin.

Senex reported a 2 per cent slide in proven and probable reserves in the full year, to 111.4 million boe, however the less certain category of 2C contingent resources grew by 57 per cent to 8.3 million boe.

Source: Financial Review