Senex Energy : 2016 AGM addresses by the Chairman and Managing Director

Senex Energy Limited (ASX:SXY, Senex) releases the addresses to be presented by the Chairman and Managing Director at the Company's Annual General Meeting today at the Stamford Plaza Hotel, Brisbane from 9.30am (AEST).

Senex is a growth focused exploration and production company based in Brisbane. With a 30-year operating history, Senex holds extensive onshore oil and gas acreage in the Cooper and Surat Basins. Senex operates the majority of its assets, produces around one million barrels of oil annually, and is successfully developing a gas business including the Western Surat Gas Project in Queensland.

Ladies and Gentlemen, thank you for your attendance today and for your continued support of Senex Energy.

The 2016 financial year was challenging for oil and gas companies worldwide. The dramatic collapse in the oil price has caused considerable pain to companies large and small, overseas and here in Australia. Senex has responded strongly to this challenging environment.

We continued to see significant volatility in the oil price. Brent crude oil fell from US$45 per barrel at the time of the last AGM to under US$27 per barrel in January before recovering to around US$45 per barrel today. For context, US$27 per barrel represents a 70 to 80% decline on the average trading price of oil for the preceding three years. History has shown us that a sharp decline in oil prices, as we saw at the end of 2014, is often followed by a quick and steady period of recovery. However, that has not transpired in the 2016 financial year given continued oversupply and a lack of clarity from OPEC.

Your Company has responded to this uncertainty by focusing on the things it could control. Strong and decisive measures were taken to manage the risks posed by the external environment, while preserving optionality for future growth.

I'd like to summarise the measures taken to ensure we entered the 2017 fiscal year in a strong financial and strategic position:

• Firstly, we protected revenues from oil sales through hedging. Early in the oil price rout, we saw the need to guarantee a minimum oil price to cover the costs of the business. We used hedging as a risk management tool, while preserving our exposure to higher oil prices. During FY16, our hedging facilities provided a net benefit of A$13.50 per barrel or

  $13 million against the backdrop of a falling oil price. We have hedged our FY17 production profile with the same objectives in mind.

• Next, we achieved material operating cost reductions, protecting margins earned from oil sales. Sustainable efficiency gains made in the field have improved our core oil business for the long term. The Company's headcount was reduced by over 30% since the start of the downturn in 2014, over several rounds of restructuring. These were extremely difficult decisions to make, but ultimately resulted in a more efficient, fit for purpose organisation.

• We also significantly reduced and high graded our capital spend for the year, deploying just $28 million on high value projects in the period. This compares to a spend in the prior year of $82 million. The team focused their energy and resources in creating efficiencies in the business, establishing a strong foundation for recovery and growth.

  As a result of the above initiatives we maintained our strong financial position, closing the year with $102 million of cash and an additional $77 million of undrawn debt capacity.

  Just as importantly, we entered FY17 with our tenure secure, improved processes and systems, and a clear focus on the business priorities ahead.

  Despite this pullback in capital expenditure, operating costs and headcount, the Senex team delivered some excellent operational results during FY16. These included:

• A significant improvement in total recordable injury frequency rate, a key measure of our safety performance. Our team was not distracted by the organisational changes or macro environment challenges through the period.

• Proven and probable reserves replacement of over 12 times production, driven by material reserve additions in the Surat Basin. Increased confidence in the Western Surat Gas Project reserves position was gained through the signing of a 20-year gas sales agreement with Santos GLNG, and the provision of offsetting well data in the neighbouring Roma field during the year.

• The Company produced 1.01 million barrels of oil equivalent, in line with guidance and at lowest ever operating cost.

• And finally, we made material progress on the Western Surat Gas Project. As I just mentioned, during the year we made important strategic agreements with Santos GLNG. These agreements deliver a market for our gas, a pathway to funding our project and access to infrastructure, as well as $42 million in cash and valuable data with which to progress the project.

In addition to these operational achievements, the Company strengthened its Board and senior management team during the year.

Your Board considered that the achievement of these metrics in FY16 justified the awarding of a short term incentive to management and staff. Against the headwinds of a very challenging market, Senex delivered, and we wanted to reward the people for their dedication and unwavering commitment during a difficult time. We are however very aware that there is still much work to do in order to see the full inherent value of Senex reflected in the share price.

So how do we intend to achieve this?

In this dynamic market, we see clear pockets of opportunity emerging. One such opportunity is the strength of the East Coast gas market, where we see the need for extra supply over the medium term. Most CSG resources and existing Cooper Basin reserves have been committed to export markets and the domestic market is short. Governments want to rely on renewables for an increasing proportion of their energy needs, but will require a complementary reliable baseload source such as gas to manage demand peaks and troughs. The net result will be higher gas prices, and policy and industry initiatives to incentivise new sources of gas supply.

The Western Surat Gas Project is the first step in establishing Senex as a player in this market. Through the development of this project, we will apply our well-honed competencies in low cost operations and expand our skill set in coal seam gas.

Going forward, we will extend our reach in this important gas market. To that end, we are collaborating with industry leader Origin Energy to progress our gas exploration project in the Cooper Basin. This is a project with exciting potential, exploring for a material uncontracted gas resource in a prospective region of the basin.

Looking to the future, we will combine this material gas position with our core business in low cost oil. We continue to see plenty of unexploited potential in the Cooper Basin and will grow this business at moderate rates until we see a definite improvement in the oil price outlook. We will prioritise the strength of our balance sheet but are prepared to deploy significant capital when the time is right in order to further grow our business.

I was pleased with the appointment of Dr John Warburton to the Board during the financial year, which has strengthened our subsurface skills in our core business. John has made a significant contribution since his appointment and has affirmed Senex's approach to finding and developing oil in the Cooper Basin.

In conclusion, Ladies and Gentlemen thank you for coming today and for your continued support.

Senex has weathered the oil downturn strongly, and is a more valuable company today than it was 12 months ago. Rest assured we are committed to seeing that reflected in the share price. A focus on the things we could control in this past year means we are now well positioned to pursue growth and benefit from an oil price recovery.

I want to conclude by thanking my colleagues on the Board, the executive team and all the staff at Senex who have worked determinedly over the last 12 months in the shareholders' interests. Your dedication, enthusiasm and talents are appreciated and will be needed in the future, as we continue to build a leading independent oil and gas company.

Trevor Bourne

16 November 2016