Strike Energy – Cooper Basin Hopeful

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Strike Energy Limited is an Australia based company involved in exploration, development and production of oil and gas projects in Australia and the United States.

The major assets of the company are:
1. Cooper Basin: Located in South Australia where the company has interests varying from 35%-100% in three different permits. This is said to be one of the most prolific onshore basin in Australia, with Strike holding a net area of around 14,988 Km2.  The permits have easy access to Australian east coast gas markets through the existing gas line infrastructure, simplifying the project should wells prove commercial. The Cooper Basin has produced over 5 Tcf of gas since the 1970s and sold to the growing Australia’s eastern and southern markets. The two fields PEL94 and PEL95 which are on the southern flanks of the basin have produced encouraging opportunities, while testing is currently underway in two wells within PEL96 which is adjoining to the above two fields.

2. Eagle Ford Shale: Strike Energy has a 27.5% working interest in this venture. The JV hold large acreage in the Lavaca and Fayette countries with Strike holding net 10,843 acres. With the current breakthrough in horizontal drilling and extraction technology the economic benefits for this venture have increased significantly. Due to the completion of nearby wells which are currently running successfully the overall risk to the venture is reduced significantly. Major players like Marathon, CNOOC and BHP Billiton have entered this area and are doing major acquisitions. The current valuation in the nearby areas has shot to $15,000-25,000/acre.  Unfortunately for Strike Energy and the JV, success has not been forthcoming to date.  A recent sale of around 1600 acres (net to Strike) netted the company only $4.5m, a significant discount to recent transactions in the Eagle Ford.  Further transactions may leave Strike with minimal working interests but possibly a free carried position for any future development.

3. Permian Basin: This is the most prolific oil producing region in US. It is located in Western Texas and has the largest reserves after Alaska in US. Strike Energy has a 25% working interest in Permian Basin Joint Venture which is operated by Torch Energy Advisors. The gross acreage of the venture is 7500 acres and a potential of 2 billion barrels of Original Oil in Place (OOIP).

4. Gulf Coast: The Gulf coast conventional is producing consistent revenue for Strike Energy from the Louise gas/condensate field.

5. Carnarvon Basin and Kingston Project:   Strike holds permits over Rivoli gas field and Baniyas prospect in the Carnarvon Basin.  A poor result from Royal Dutch Shell’s recent well adjacent to Strike’s permit has left this project mothballed for the near term.

Strike also holds rights over 578 million tonne of lignite resource near Kingston, South Australia. It has multiple applications from fertilizers, gas-liquids conversion and power.  Little interest has been shown by third parties in this project.  As such, it currently sits on the back-burner while Strike concentrate their efforts on proving up the Canning Basin permits.

Overall the company’s stock has seen a roller coaster ride with ups and downs depending on the developments in its fields.

STX:AU 12 Month Chart

Figure 1 : 12 month price chart for Strike Energy

Future gas prices have a bullish trend on the east coast of Australia. The prognosis by Santos, a large Australian oil and gas exploration company is also very bullish about the future trend of prices. According to it the oil parity price of gas for $100/barrel price is $7/Gigajoule. Also the requirement of cleaner fuel would push the demand of gas thus inflating the price further. The current price in Australia is extremely cheap when compared with other countries of Asia Pacific. (Japan and South Korea are on the upper end with around $11/GJ).  As east coast LNG export plants start operation and exporting in the near term, a gas shortage is expected as demand in Asia soaks up supply, with resulting increases in gas prices on Australia’s east coast.

Australian Wholesale Gas Prices
Figure 2 : Australian Historical and Predicted Wholesale Gas Prices

Strike Energy well is placed to benefit from any discoveries coming from its wells in Cooper Basin, with nearby access to pipelines directly into the east coast gas supply, at a time where demand for gas is expected to increase along with increasing prices.  Cash flow from existing operations in the US help mitigate risk to a certain extent.  Landmark investment deals with industry (Orica, Orora, Austral Bricks) requiring steady and affordable gas supply in the last 12 months will dramatically decrease Strike’s requirement for capital in the near term, should they prove their Cooper Basin permits commercial.

 

In the near term we expect testing updates and forward planning updates on Strikes wells in Pel 96 as well as an update on any testing in Pel 94 with joint venture partner, Beach Energy.  Any positive news here and/or clear forward planning could push share prices higher and we watch with interest.

Disclaimer: The owners/writers at YourWealtWatch hold direct interests in Strike Energy shares.

 

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