Senex managing director and chief executive Ian Davies.
BY REUBEN ADAMS
SENEX has a plan to take advantage of significant opportunities in a structurally short east coast gas market. With a successful recent capital raising and support from heavyweight energy investor EIG Global Energy Partners, the gas producer looks set to progress its Western Surat Gas Project (WSGP) in Queensland; progress opportunities in the Cooper Basin; and pursue company-building acquisitions.
Specialist energy investor EIG Global Energy Partners became a substantial Senex shareholder in February this year; a deal that could prove a game changer for the ASX 300 company.
EIG has made development funding available, including up to $US300m for the Western Surat Gas Project subject to investment decisions and approvals, and has taken a stake of 12 per cent in Senex with an EIG representative to join its Board. Around the same time that EIG joined Senex’s share register, Senex successfully raised $91 million when it offered EIG, institutions and retail shareholders the opportunity to participate in the company’s growth plans.
Together, this additional funding will support Senex’s pursuits in oil and gas opportunities on the east coast.
But the strategic rationale for the relationship with EIG extends beyond funding one or two projects – Senex will now have the funds, and backing, to actively pursue acquisition opportunities. Senex also expects the investor’s strong technical team to assist in the development of the WSGP.
Senex chief executive Ian Davies said the company had further strength and momentum to take advantage of substantial opportunities in the east coast gas market, by developing and expanding its significant upstream positions in both the Surat and Cooper Basins.
“We know the Western Surat Gas Project is a great asset, given our understanding of the subsurface and our ability to operate safely and at low cost,” Mr Davies said.
“EIG is a respected global energy investor and their support shows they also see the opportunity for Senex to build a significant east coast gas business.”
In February, EIG chief executive Blair Thomas said the Western Surat Gas Project was in prime position to supply gas into the structurally short east coast gas market.
“EIG has been an early investor in coal seam gas in Queensland since the late 1990s, and we believe now is the opportune time to develop these assets as fundamentals are supportive,” he said.
“Senex has the right people to develop the project and in long-term partnership with EIG we believe the Company will build a tier-one asset.”
Natural Resources and Mines minister Dr Anthony Lynham welcomed the news as the latest sign of investor confidence in QLD’s gas sector.
“This shows real market confidence in our resources sector and particularly Queensland’s $70 billion CSG-LNG industry,” Dr Lynham said.
“This industry already directly employs 5000 people and supports more than 60,000 fulltime jobs.
“We understand this project will generate up to 100 jobs, of which 80 will be local roles in drilling and construction.”
Analysts also applauded the deal.
Importantly for Senex, Morgans noted, EIG’s experience and technical capabilities would offer potential insights as the WSGP progressed towards full-scale development.
“We already had a positive view on Senex prior to the deal, believing the company was well positioned to pursue growth at the low point in the energy cycle,” Morgans stated in a research note.
“Despite the downturn in oil prices, Senex has steadily repositioned the business to focus on gas – while maintaining zero debt on the balance sheet.
“We see significant upside potential on offer in Senex, with key risks being the oil price and WSGP’s operational performance.
“This positive view has been reinforced by the deal with EIG, which has joined Senex’s register with aligned interests, which will allow Senex to bring forward the development of WSGP.”
Credit Suisse stated the partnership could be “the start of something beautiful”, especially when I came to opportunities for value adding asset acquisitions.
“We strongly believe, and therefore sincerely hope, that this strategic arrangement extends to inorganic opportunities,” Credit Suisse stated.
“There is now a credible partnership that brings technical capabilities and funding capacity to play in the bigger end of town.
“Frankly, with the domestic gas industry still in paralysis, the gas market needs someone to develop these assets not sit on them.
“Finally we might have someone willing to actually do something rather than just talk.
“What we believe this arrangement does is provide a platform from which value is able to be added.
“For those looking for exposure to the East Coast gas market, Senex looks an increasingly attractive option now.”
Now, according to The Australian newspaper, Senex and EIG could be battling it out with Beach Energy for Origin’s upstream Lattice Energy assets, worth more than $1 billion.
Late last year, Origin announced plans to divest by initial public offering (IPO) its conventional upstream business – dubbed NewCo, then renamed Lattice Energy – including interests in the Otway Gas project, BassGas project, Kupe Gas project; and the Perth, Cooper, Bonaparte and Canterbury basins.
In May, Origin managing director Frank Calabria said the company had continued “to make good progress on the divestment of Origin’s conventional upstream business, Lattice Energy, during calendar 2017”.
In April Senex also responded to the QLD Government’s Call for Tenders for a Petroleum Lease (PL) on acreage in the Surat Basin and an Authority to Prospect (ATP) on acreage in the Bowen Basin.
“The acreage release represents an important opportunity to support the State’s growth and deliver critical energy supply to the domestic market,” Mr Davies said.
Western Surat Gas Project
The WSGP is about 30 kilometres north of Roma in Queensland, adjacent to existing coal seam gas fields which primarily supply to LNG trains for GLNG and APLNG.
The project spans 915sqkm and is expected to support up to 425 wells drilled over 20 years or more.
Senex completed a gas pilot in December with raw gas produced and sold to GLNG.
Senex’s current project activities commenced in June, reflecting a $50 million investment program to further appraise the project area, and in pursuit of an indicative gas production rate of up to 10 terajoules per day, or about 0.6 mmboe per year, by mid-2018.
These activities include a 30-well drilling program and construction of water and gas gathering facilities. These facilities include the upgrade of an existing dam on the Eos block to current standards; installation of underground pipelines and gas and water custody transfer metering skids; and installation of a 36km underground gas and water gathering network.
The company was also undertaking appraisal activities west of the Eos block in parallel with the drilling program, and progressing full field development planning including required regulatory approvals, native title and land access activities.
In South Australia, Senex holds an extensive acreage position across the Cooper Basin, one of Australia’s most prolific onshore oil and gas provinces.
Boasting a 2P reserves position of 10.8mmboe, Senex has recently prioritised high value oil opportunities over the western flank, which is responsible for about 80 per cent of the company’s current production.
In the northern Cooper Basin, it was developing its Vanessa conventional gas field in a joint venture (JV) with Beach Energy.
The company also announced plans in March to accelerate gas delivery from Vanessa – to be brought online in FY18 – with the approval of $5.82m in funding through the South Australian Government’s Plan for Accelerating Exploration (PACE) Gas Grant Program.
The first round of PACE Gas Grants saw five exploration and development projects share in $24m in State Government funding.
Energy Minister Tom Koutsantonis said the grants would generate up to $174m in new investment by oil and gas companies in local production projects.
“Gas extracted through the grant scheme will be offered to South Australian electricity generators first, increasing the affordability of supply and putting downward pressure on power prices,” Mr Koutsantonis said.
Mr Davies said the funding would contribute to the cost of infrastructure to connect the Vanessa gas field with South Australian customers.
“This gas project will deliver new gas primarily from the Senex-operated Vanessa field in the northern Cooper Basin to South Australian domestic customers,” Mr Davies said.
As east coast demand increases, Senex has also focused on longer term exploration plays in the Cooper Basin to support this demand.
It recently drilled the pioneering Silver Star-1 gas exploration well in the Cooper Basin.
Senex’s deep gas project with Origin Energy and Planet Gas was targeting basin-centred and stratigraphically trapped gas in the Patchawarra and Allunga Troughs, and represented one of Australia’s only onshore gas exploration investments over the last year.
“Drilling of Silver Star-1 reflects our commitment to unlocking high risk gas acreage in the Cooper Basin and to delivering more supply for the east coast market,” Senex stated in June.
The Silver Star-1 DW1 well reached a total depth of 4969m on 1 June, including a horizontal section of 1180m within the Patchawarra Formation.
Gas shows in the horizontal section were in line with expectations, but during casing of the well, unstable coals through the horizontal section collapsed and damaged the casing itself.
The company stated that the well had been suspended while a forward plan was finalised.
“As there is no precedent for the drilling of a horizontal well through the Patchawarra in the Cooper Basin, the outcomes are considered within the bounds of possibilities for such pioneering deep gas exploration,” the company stated.
“The joint venture remains committed to evaluating material gas resources in the permit area.”