Strike Energy – (ASX: STX, Share Price: $0.12, Market Cap: $185m, coverage initiated @ $0.10 in October 2015 – current gain of 20%)
Key Catalyst
Confirmation that the Strike-Warrego Joint Venture has made a significant gas discovery in the Wagina sandstone as part of the West Erregulla-2 drilling campaign.
STX has been our sole ‘unconventional’ energy play since we initiated coverage back in late 201. Its focus has been on defining the overall resource size and commercial viability of its emerging Southern Cooper Basin Gas Project (SCBGP), with the ultimate aim of delivering gas under long-term supply arrangements to energy-hungry markets in Eastern and Southern Australia. Along the way, STX has had to overcome various significant technical challenges. What we now know is that the SCBGP’s coal seams host an enormous amount of gas and with the successful completion of the Jaws-1 wells, STX is now in a position to test the commercial quality of the SCBGP. More recently STX has acquired interests in the Perth Basin of Western Australia where it is currently drilling the West Erregulla-2 well, adjacent to and targeting analogous Permian gas sands of a similar size and nature as the Waitsia gas discovery. The well is being drilled to a planned total depth of 5,200m and a significant gas discovery has already been confirmed.
Latest Activity
West Erregulla-2 Well
STX and another Perth Basin operator, Warrego Energy (ASX: WGO) have collaborated and sequenced their drilling programs in order to facilitate the drilling of the West Erregulla-2 well within EP469 (STX 50% and Operator, WGO 50%). The well is currently in the process of being drilled and a significant gas discovery has already been confirmed.
The West Erregulla-2 well is adjacent to and is targeting analogous Permian gas sands of a similar size and nature as the Waitsia gas discovery (refer to graphic above). The well will be drilled to a planned total depth of 5,200m and penetrate three independent reservoir targets. These include a conventional oil prospect in the Cattamarra, a conventional gas target in the Basal Wagina sandstones and the primary gas sand sequence in the Kingia High Cliff.
Latest Activity
In its latest drilling update released on Thursday, STX has confirmed that the Joint Venture has made a significant gas discovery within the Wagina sandstone as part of the West Erregulla-2 drilling campaign.
The Wagina sandstone was found to be ~74 metres in thickness (from 4,106 to 4,180m) and comprised of sections of clean sand with interpreted blocky porosity development. This sand section is observed to have hydrocarbons present throughout. Interestingly, the well section was finished without observing the end of the Wagina and there is potential for further Wagina sands to be encountered in the next section.
The sudden influx of over-pressured gas into the well whilst drilling through the Wagina exceeded expectations and required mud weight changes to re-establish appropriate well conditions. Unfortunately this led to damage to the well bore and attempts to gather reservoir pressures and samples were not successful. For this reason reliable logging was also unable to be achieved in the lower Wagina, however where credible logging results were captured at the top of the Wagina, this confirmed 14.2% porosity over a 2.5m section.
Technical Significance
STX describes this as a significant discovery. Significantly, it’s a secondary target that carried a low pre-drill probability of success. Importantly, what this does is provide further confidence in STX’s predictions of good porosity development being possible within the Permian reservoirs at depths greater than that of Waitsia and to the southeast.
With good porosity trends continuing with depth, STX believes that it is on track to find a good quality reservoir within its primary target in the Kingia-High Cliff. With the primary target remaining to be drilled and potentially even more Wagina to come, this is a very exciting time for the company.
The wireline logs have been loaded into STX’s geological model and formation tops have been correlated to nearby offset wells. This correlation suggests that the Basal Wagina sandstone, which is the formal secondary target of the well, is yet to be encountered.
Next Steps
STX is currently pulling out of hole with the cleaning assembly and will then commence running in hole with the 8-5/8” liner before cementing in place to finish the second intermediate section. Following this, drilling will commence in the 6-3/4” final (production) hole section to a nominal total depth of 5,200m. The primary Kingia and High Cliff gas targets will be intercepted during the drilling of this section.
Summary
West Erregulla is one of the largest pre-drilled conventional onshore prospects in Australia and the well, with its corresponding results, is likely to be watched closely by other operators across the region. Together the total stacked gross prospective resource (best P50) estimate from these two reservoirs is 1.16 TCF, with a prospective gross play range of 761 BCF (low P90) to 1.67 TCF (high P10) (un-risked).
With good porosity trends continuing with depth, STX believes that it is on track to find a good quality reservoir within its primary target in the Kingia-High Cliff. With the primary target remaining to be drilled and potentially even more Wagina to come, this is a very exciting time for the company. Although it is too soon to evaluate the commercial significance of these early results, the Wagina target could be a material discovery, with a pre-drill mid-case resource estimate of 247 bcf.
