Earlier this week, Strike Energy (STX-ASX) announced that pump upgrades on a number of their production testing wells in Pel96 in the Southern Cooper Basin have made for significant progress towards commercial flow rates. If successful, the sheer size of the prospective resource will make for what could be a re-rating of epic proportions.
Having significantly de-risked the geological equation (quite a feat given the depth of the coals), the issues presenting to Strike in the Cooper Basin have largely been of an engineering nature. Previous pumps have been unable to dewater the wells efficiently/effectively enough to achieve stable pressure drops to allow for commercial flows of gas.
Upgrades to the Klebb 2 and 3 well pumps are now complete, with gas flows already commencing despite the long shut-in period (extended shut-in periods normally result in long delays to achieve gas production upon restarting the well). Strike announce that having achieved the required water flow rates to produce gas, the pumps have substantial capacity remaining which should allow for increased water flow rates and the required down hole pressure reductions (reservoir de-pressure) to increase gas flows to commercial rates.
Additionally, Strike announce that progress with the Klebb 4 well, which will have yet another pump upgrade (electrical submersible pump) is progressing with completion expected in June. Positive flow rates from this new well should indicate the Strike team are getting a better handle on the engineering requirements for success in the project.
It has no doubt been a very frustrating period for Strike shareholders, not helped by a recent capital raising, resulting in further dilution to smaller shareholders (the raising was open to sophisticated investors and directors only). Having completed a number of raisings in recent years, resulting in significant dilution to shareholders, the Strike management team no doubt feel the pressure to deliver. Taking a positive view, if management wording in announcements is anything to go by, they are as close as ever to proving commercial flow rates on what will be a company making project. Finishing off their recent announcement, Managing Director David Wrench states:
“The early performance of the new facilities is very encouraging and we fully expect to make significant progress towards commercial flow rates and beyond as the reservoir is de-pressured.”
We may have heard similar statements before, however we can’t help but feel that the Strike Energy team are right on the verge of proving their enormous Southern Cooper Basin project is commercial. The share price has hardly moved following the announcement, possibly indicating the market is awaiting proven commercial flows, and possibly a result of the recent raising (participants re-balancing their portfolio). We eagerly await their next announcement, hopefully proving once and for all that this project will be commercial.
Disclaimer: The authors of this article are shareholders of Strike Energy shares. This article should not be considered financial advise and all readers should seek professional advice before making financial/investment decisions.