Senex Energy : December 2021 Quarterly Report

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Quarterly report

For the quarter ended 31 December 2021

Highlights

Senex Energy Ltd (Senex, ASX: SXY) today announced continued strong operational performance, delivering its 20th consecutive quarter of record Surat Basin production with a 5% increase to 5.2 PJ. At Atlas, Stage 2 development commenced, while the acquisition from Australia Pacific LNG of two adjacent undeveloped gas fields will underpin a further stage of production expansion to 30 PJ/year in 2024. Our Decarbonisation Action Planand first standalone Sustainability Report, both released during the period, highlight our sustainability approach, priorities and performance as well as our commitment to reduce greenhouse gas emissions across our operational footprint to net zero by 2040.

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• Continued growth in production: Quarterly production up 5% to 5.2 PJ, with growth at both Roma North and Atlas.
• Sales revenue up 9% to $38.7 million before hedging impacts, at an average realised gas price of $7.8/GJ.
• Acquisition of APLNG natural gas fields: Completion of agreement with Australia Pacific LNG to acquire undeveloped gas fields PL 209 and PL 445, adjacent to Atlas. These new fields provide additional optionality to Senex's development portfolio and, consequently, the company is reviewing the sequencing of its Surat Basin developments.
• Atlas Stage 2: Development activity for the 50% expansion in nameplate capacity to 18 PJ/year (48 TJ/day) commenced during the quarter, with commissioning expected in Q1 FY23.
• Additional customer contract signed: Domestic gas sales agreement signed with Shell Energy Australia for supply of 8 PJ of natural gas over four years, starting in 2022.
• Decarbonisation Action Plan: Detailed our ambition, targets, and actions to reduce greenhouse gas emissions across the value chain. Our Sustainability Report documented our environmental, social and corporate governance performance and our commitment to continuous improvement.
• Binding Scheme Implementation Agreement: Senex entered into a binding Scheme Implementation Agreement with POSCO INTERNATIONAL Corporation on 13 December 2021, whereby
  100% of Senex's shares will be acquired for a cash offer price of A$4.60 per share.

Comments from Managing Director and CEO Ian Davies

"Senex has delivered another strong quarter of operational, project development and financial performance as we advance towards our production growth target of 60 PJe by year-end FY25.

"The acquisition of undeveloped gas fields PL 209 and PL 445 from APLNG supports our growth trajectory in the Surat Basin, while we reinforced our commitment to sustainability with the release of our Decarbonisation Action Plan and Sustainability Report.

"All these achievements reflect our commitment to providing reliable, affordable and sustainable natural gas that helps Australian industry as it transitions to a low-carbon future."

Accelerated disclosure of key half year metrics

• The expected implementation timeframe of the proposed Scheme of Arrangement announced on 13 December 2021 requires accelerated disclosure of Senex's primary financial statements for the 31 December 2021 half year.
  See this report's Appendix for unaudited statements.
• Senex expects to release its full auditor-reviewed financial statements for the half year ended 31 December 2021 on 21 February 2022.
• Senex has updated FY22 financial guidance announced on 19 August 2021. See page 3.

For

Key performance metrics

December

September

December

Qtr on Qtr

FY22

Q2 FY21

Q1 FY22

Q2 FY22

Change

YTD

Total production

4.3 PJ

5.0 PJ

5.2 PJ

5%

10.2 PJ

(0.74 mmboe)

0.9 mmboe)

(0.9 mmboe)

(1.8 mmboe)

Total sales volumes1

4.0 PJ

4.8 PJ

4.9 PJ

3%

9.7 PJ

(0.69 mmboe)

(0.8 mmboe)

(0.8 mmboe)

(1.7 mmboe)

Average realised gas price ($/GJ)2

6.2

7.4

7.8

5%

7.6

Total sales revenue ($ million)3

25.2

35.4

38.7

9%

74.1

Net cash / (debt) ($ million)

(52.0)

5.1

(12.2)

n.m.

(12.2)

Released 21 January 2022

Quarterly Report for the quarter ended 31 December 2021

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Financial

Sales volumes and revenue

Total sales volumes of 4.9 PJ were 3% higher than the previous quarter reflecting:

• increased sales from production due to increased production rates at Roma North and Atlas; and
• reduced third-party gas purchases.

Sales revenue of $38.7 million was 9% higher than the prior quarter due to the increased sales volumes highlighted above and a 5% increase in the Australian dollar gas price for the portfolio to $7.8/GJ (Q1 FY22: $7.4/GJ).

Net sales revenue increased 5% on the prior quarter to $34.7 million due to the above factors, partially offset by the impact of oil-linked hedges.

Sales volumes and revenue	December	September	December	Qtr on Qtr	FY22
	Q2 FY21	Q1 FY22	Q2 FY22	Change	YTD
Gas sales volumes1 (PJ)	3.8	4.6	4.8	5%	9.4
Third-party gas purchase volumes (PJ)	0.2	0.2	0.1	(41%)	0.4
Total sales volumes (PJ)	4.0	4.8	4.9	3%	9.7
Average realised gas price ($/GJ)2	6.2	7.4	7.8	5%	7.6
Total sales revenue ($ million)3	25.2	35.4	38.7	9%	74.1
Impact of hedging on revenue ($ million)4	2.6	(2.4)	(4.0)	(67%)	(6.4)
Net sales revenue - post hedging ($ million)	27.9	33.0	34.7	5%	67.7

NB. Totals throughout report may not add due to rounding

Liquidity

As at 31 December 2021 Senex had strong liquidity, with cash reserves of $62.8 million and a net debt position of

$12.2 million. Drawn debt remained at $75.0 million. Net cash outflow for the quarter was $17.3 million, which included capital expenditure of $34.1 million5.

Cash reserves and net cash / (debt) $ million	December	September	December	Qtr on Qtr
	Q2 FY21	Q1 FY22	Q2 FY22	Change
Cash reserves	58.0	80.1	62.8	(22%)
Drawn debt	110.0	75.0	75.0	0%
Undrawn debt	15.0	50.0	50.0	0%
Net cash / (debt)	(52.0)	5.1	(12.2)	n.m.

1. Senex own product
2. Average realised gas price excludes impact of oil price-linked hedges. JCC-linked revenue trails Brent by approximately five months
3. Excludes the impact of oil price-linked hedges
4. Reflects impact of oil-equivalent production hedges. Refer to page 3 for further information
5. Differs from the $36.1 million in capital expenditure reported in the "Capital Expenditure" table on page 3, as that figure is calculated on an incurred basis, rather than a cash outflow basis

Quarterly Report for the quarter ended 31 December 2021

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Financial

Capital expenditure

Capital expenditure of $36.1 million was 193% higher for the quarter (Q1 FY22: $12.3 million), reflecting our recommenced drilling program and expansion projects (see Development Update section).

$ million	December	September	December	Qtr on Qtr	FY22
	Q2 FY21	Q1 FY22	Q2 FY22	Change	YTD
Exploration and appraisal	0.3	0.6	0.7	17%	1.3
Development, plant and equipment	8.0	11.7	35.4	203%	47.1
Capital expenditure	8.3	12.3	36.1	193%	48.4

Hedging

Equivalent production of 363.7 kbbl is hedged at an average of US$54.8/bbl for 18 months from 1 January 2022.

Oil swaps	Q3	Q4	Q1	Q2	Q3	Q4
	FY22	FY22	FY23	FY23	FY23	FY23
Volume (kbbl)	102.2	102.2	53.4	53.4	26.3	26.3
Weighted average swap price (US$/bbl)	56	55	54	54	53	53

FY22 guidance update

Senex reiterates financial guidance for FY22 announced on 19 August 2021 (see table below), with the exception of higher expected FY22 capital expenditure. Senex now provides capital expenditure guidance of between $120-$140 million (up from $70-$80 million) due to the following decisions taken:

1. Certain drilling development activity previously planned for FY23 has been brought forward to late FY22 to fill available additional gas processing capacity at both Atlas and Roma North; and
2. The commitment to certain compression facility long-lead items for planned production expansion projects.

Ordinary dividend guidance for FY22 has been withdrawn as a result of the proposed Scheme of Arrangement with POSCO INTERNATIONAL Corporation. As announced on 13 December 2021, Senex currently anticipates paying an interim dividend of up to 5 cents per share in respect of the half year ended 31 December 2021 (subject to Board approval) in the ordinary course. Should the Scheme of Arrangement not proceed to implementation, the Senex Board will consider any final dividend payable in respect of the full year ending 30 June 2022 taking into account the circumstances existing at the time.

Updated FY22 guidance:
Item	FY22 original guidance	Updated guidance
Production	21-23 PJ (3.6-4.0 mmboe)	No change
Sales (Senex own product)	19-21 PJ (3.3-3.6 mmboe)	No change
EBITDA (underlying)	$75-$85 million	No change
Capex	$70-$80 million	$120-$140 million

Free cashflow (FCF)	$50-$60 million	No change

Quarterly Report for the quarter ended 31 December 2021

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Operations

Production

In the Surat Basin, daily production reached a peak of 59 TJ/day during the quarter. Gas production of 5.2 PJ was 5% higher than the prior quarter, and represents the 20th consecutive quarter of Surat Basin production growth.

	December	September	December	Qtr on Qtr	FY22
	Q2 FY21	Q1 FY22	Q2 FY22	Change	YTD
Total production (PJ)	4.3	5.0	5.2	5%	10.2

The chart below demonstrates continued strong quarterly growth in Surat Basin gas production and peak daily rates, with an average quarterly compound production growth rate of 23% since Q1 FY20.

Surat Basin Quarterly Gas Production

	6.0									56	59	60
								52	53
	5.0						49			50
						44
	4.0										40
PJ	3.0				35							30	TJ/day
		27
	2.0		18									20
	1.0	11										10
	0.0	0.8	1.3	2.1	3.0	3.7	4.3	4.6	4.7	5.0	5.2	-
		Q1 FY20	Q2 FY20	Q3 FY20	Q4 FY20	Q1 FY21	Q2 FY21	Q3 FY21	Q4 FY21	Q1 FY22	Q2 FY22

Quarterly production (PJ)

Peak daily rate (TJ/day)

Development update

Senex has a stated target to grow annual production to more than 60 PJe by the end of FY25. The growth is to be achieved primarily through development of Senex's extensive natural gas reserves position in the Surat Basin and its proven hub-and- spoke infrastructure operating model. Senex currently holds 767 PJ of 2P reserves and 1,016 PJ of 3P reserves across its Surat Basin natural gas acreage, prior to the acquisition of PL 209 and PL 445.6 Senex annually reviews and updates its gas reserves position and reports the updated estimates as of 30 June each year. Senex's estimates for PL 209 and PL 445 (as independently assessed by NSAI) are 75 PJ of 2P reserves and 130 PJ of 3P reserves.7

FY22 drilling program continues

Easternwell continues to progress an expanded 54-well FY22 natural gas drilling program across Senex's Atlas and Roma North developments. This expansion of the original 30-well drilling program brings forward planned FY23 drilling activity, creating development efficiencies and enabling gas processing capacity at Atlas and Roma North to be filled several months sooner. The acceleration has also resulted in an increase in FY22 capex guidance as discussed above.

1. For further information on Senex's reserves and resources as at 30 June 2021 refer to the ASX release dated 9 August 2021. There has been no material change to information or assumptions contained in that release.
2. For further information about the estimated reserves and resources of PL 209 and PL 445, see Senex's ASX announcement about the acquisition dated 8 November 2021 (including the reserves and resources statement on page 3). Senex has not changed its view of the estimated reserves or resources since then, and there has been no material change to information or assumptions contained in that release.

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Quarterly Report for the quarter ended 31 December 2021

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Gas field development sequence review underway

Senex is currently reviewing the development sequence of its Surat Basin assets following both the acquisition of PL 209 and PL 445 adjacent to Atlas, and the entry into a binding Scheme Implementation Agreement with POSCO INTERNATIONAL Corporation. Roma North Stage 2 FEED has been completed, with the timing for a Final Investment Decision (FID) to be decided following this review.

Roma North Stage 1b expansion to 9 PJ/year (24 TJ/day) - Online (August 2021)

On 13 October 2020, Senex announced the FID for a 50 per cent expansion of natural gas production at Roma North to

9 PJ/year (24 TJ/day). The facility expansion was completed and online in August 2021, with a production peak of 20.7 TJ/day achieved in October 2021. Nameplate capacity of 24 TJ/day is expected to be achieved by the end of FY22.

Atlas Stage 2 expansion to 18 PJ/year (48 TJ/day)

Senex announced in August 2021 that FID had been taken for the $40 million expansion of natural gas production at Atlas to

18 PJ/year (48 TJ/day firm capacity). The expansion is a low-cost,low-carbon,high-return and long-life investment to support increased domestic natural gas supply to Australian manufacturers and other domestic users. Senex has finalised arrangements with Jemena to construct and fund the Atlas processing facility expansion under an extension of existing tolling arrangements, with commissioning expected in Q1 FY23.

Atlas Stage 3 expansion to 30 PJ/year (80 TJ/day)

In November 2021, Senex announced it had entered into a binding agreement with Australia Pacific LNG to acquire the undeveloped gas fields PL 209 and PL 445, adjacent to Senex's Atlas natural gas development, for $80 million. On 17 January 2022, after the quarterly reporting period, Senex announced that the agreement had been completed.

PL 209 and PL 445 include a 77 km2 development-ready Northern Area, comparable in reservoir quality to the adjacent Atlas field, and a 77 km2 Southern Area requiring future appraisal. The acquisition delivers an Estimated Ultimate Recoverable (EUR) volume of 184 PJ in the Northern Area, with additional ~600 PJ estimated gas-in-place in the Southern Area requiring future appraisal. There are no gas supply obligations or domestic marketing commitments, providing portfolio flexibility.8

Atlas development area including newly acquired PL 209 and PL 445

Expansion of Atlas is providing increased domestic natural gas supply to Australian manufacturers and other domestic users.

8 Senex's estimates of reserves, resources and OGIP over PL 209 and PL 445 (independently assessed by Netherland Sewell & Associates (NSAI)) - 2P: 75 PJ | 3P: 130 PJ | 1C: 54 PJ | 2C: 72 PJ | 3C 134 PJ | OGIP: 1,091 PJ. 2P acquisition multiple $1.06/GJ; 3P acquisition multiple $0.61/GJ; EUR acquisition multiple $0.43/GJ.