Senex Energy : 2017 AGM addresses by the Chairman and MD

Senex Energy Limited (ASX:SXY) 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 an ASX listed oil and gas exploration and production company focused on generating shareholder value by growing reserves and production. It holds extensive onshore oil and gas acreage in the Cooper and Surat Basins, two of Australia's most prolific onshore energy regions. Senex is well capitalised and has built strong operating credentials over its 30 year history. Senex operates low cost oil producing assets in the Cooper Basin and is progressing a portfolio of gas projects including the Western Surat Gas Project and Project Atlas in Queensland.

Chairman's Address to the Annual General Meeting 2017

Our company has gained strong momentum over the past 12 months. We are making solid progress against our strategy, and towards our vision of being a leading oil and gas explorer and producer.

Commodity price recoveries and careful cost management have strengthened our operating business in the Cooper Basin. And in the Surat Basin we have significantly progressed the Western Surat Gas Project and expanded our position with Project Atlas, in a market of substantial opportunity. We are well-funded, well-managed and well-positioned, and you can expect continued momentum in the year ahead.

Since my last address to you, much has happened in both our business and our industry. The volatility in the global energy sector has provided encouraging signs of improvement, giving businesses like us longer term confidence to get on with investing for the future. Locally, however, we have seen volatility of a different kind. Complex issues continue to play out around delivering affordable and reliable energy in the context of a transition to a low-carbon economy. Senex is embracing the opportunity to be part of the solution in this exciting, and some would say challenging, chapter of Australia's history.

I want to first address the macro backdrop, what many are calling the domestic energy crisis, and highlight what this means for Senex.

The energy crisis has dominated political agendas and media headlines during 2017. To say we are at the beginning of a kind of energy revolution is not an overstatement.

Many stakeholders are involved including governments, suppliers, customers and various energy experts. There was widespread commentary, plans developed, solutions offered and deals made. Senex is not alone in our view that interventions like the Australian Domestic Gas Security Mechanism remain short-sighted and damage the potential of the market to respond appropriately, while the Finkel Report's recommendations provided a sensible forward path. The unresolved recommendation around cleaner energy was finally addressed last month, and we welcome the Federal Government-endorsed National Energy Guarantee.

Fundamentally, regulatory instability and disconnected energy policies are not helpful to the objective of delivering affordable, reliable and sustainable energy. We hope to see the States and Territories agree on a solution around the National Energy Guarantee at the COAG meeting later this month.

In all of this, however, gas continues to be an integral part of the energy mix, supporting the transition towards a lower carbon future. Smaller operators like Senex have an important role to play in bringing that gas to market as cheaply and efficiently as possible. Our view is that Senex is well positioned under every regulatory scenario and we have the right strategy and capability to realise the near-term potential in the east coast gas market.

Let me expand on why.

Domestically, gas remains one of the best sources of dispatchable energy. Within the current structure of eastern Australia's power grid, we need a substantial volume of this energy to respond effectively to peak volume demands, particularly as intermittent renewables continue to grow in the energy mix.

We also have demand from the domestic manufacturing sector for gas as feedstock. Australia's manufacturing sector was built on the back of decades of cheap and reliable gas from some of the world's best conventional gas reserves. Many customers are now faced with the challenges of securing reliable and affordable contracts as the traditional sources of supply shift to more unconventional gas resources, with an associated higher cost of production.

Converging for the first time with these domestic markets is the significant international demand for gas that underwrote the investment in our world-first CSG to LNG export industry. Three operating LNG export facilities in Queensland have created substantial long-term demand at global prices.

We believe that gas is integral to Australia's economy and to our energy future. Explorers and producers must be enabled to bring the nation's significant gas resource potential to market safely and at low cost, and in line with the expectations of a local and global community.

Senex enjoys a position of relative strength in this landscape, with our strategy of building a gas business focused on cost leadership and collaboration with all stakeholders.

Our ability to develop gas resources safely, efficiently and at low cost is a key point of difference. Our progress over the last few years during the downturn has focused on leveraging this skill set, established in oil and propelled by our position in the east coast gas market. We are closer than ever to a material gas revenue stream, with a sensible mix of LNG and domestic buyers for our gas.

In doing so, we are one of the only independent energy companies bringing material new volumes of gas to the market. We are uniquely positioned and are determined to maximise the opportunities this represents. In terms of the significant progress made since our last AGM, Ian will expand on the operating highlights for both our gas and oil portfolio in his address.

Safety and environmental values have remained core to our activities across our portfolio, and we continue to focus on building a positive legacy for our communities.

On this point, and as shareholders, you want to know that your company is continually managing its responsibilities in the area of sustainability.

We also see that many larger ASX listed companies are increasingly featuring the potential risks around climate change in their disclosures.

I can assure you that as a smaller operator, we continue to aspire to the highest standard of risk management and sustainable performance in all aspects, and to embed the systems and processes needed to support this aspiration. These activities, and any investment associated with them, are conducted relative to the size and scale of our operations.

Importantly, our focus on building an upstream gas business is also reflective of Senex playing its role in the transition to a low-carbon economy and to the worthy objectives of the Paris Agreement.

Moving on, I will now turn to the topic of capital management.

Senex reached 30 June with a cash balance of $135 million, and more recently at 30 September we had $110 million in the bank. The board has remained focus on robust capital management and Senex's 2017 cash balance was at the highest level in several years. Our investment programs during the year were carefully sized and prioritised, with moderate investment into the Cooper Basin oil business while we increased investment into our Queensland gas portfolio.

We also continue to implement a foreign exchange and hedging strategy to protect sales revenues, and this provided a level of downside protection during the last financial year.

We elected to reduce our debt facility to $20 million, with part of that drawn for bank guarantees, leaving approximately $16 million of undrawn debt capacity.

We have been carefully planning for the capital required to advance key projects, particularly the Western Surat Gas Project and now Project Atlas. We are close to assembling a competitive whole- of-company financing solution and will provide an update on that in due course.

I'll now discuss some of today's agenda items.

In preparation for today, I was reflecting on the past three years as your Chairman and my 20 years of experience as a director. I believe that Senex has a very high-quality team of directors and equally well-credentialed executive team leading the business. We are also operating in one of the most dynamic commodity cycles that I've seen with complex issues to navigate, and Senex has emerged from the downturn more resilient and with a portfolio of growth projects. This doesn't happen by chance and you need strong leadership to thrive in this environment.

This is why, at the Board level, I believe we have an optimal mix of skills, knowledge, connections and insights. Your Board and executive team remain committed to growth and are very capable of executing this promise.

For these reasons, it was proposed that EIG becomes an additional member of the Board team, and Resolutions 6 and 7 presented in the Notice of Meeting reflect this. I acknowledge the concerns of some shareholders who question if now is the right time to increase the number of directors and associated fee pool to accommodate this. I am confident this is the right decision to retain the corporate knowledge and experience we have and to strengthen the director team with EIG's representation.

EIG became a substantial shareholder earlier this year when we executed the successful capital raising of $91 million. EIG is a global energy investor with a 35-year track record in global energy markets. As you may know, part of EIG's business is to provide development funding for gas projects around the world, and welcoming EIG to our register adds further diversity to Senex's funding options.