Strike Energy – (ASX: STX, Share Price: $0.28, Market Cap: $430m, coverage initiated @ $0.10 in October 2015 – current gain of 180%)
Key Catalyst
The Strike-Warrego Joint Venture has made a significant gas discovery within the Kingia sandstone as part of the West Erregulla-2 drilling campaign, exceeding all expectations.
STX has been our sole ‘unconventional’ energy play since we initiated coverage back in late 201. Its initial 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 focused its attention on its interests in Western Australia’s onshore Perth Basin, where it appears to have had enormous success drilling the West Erregulla-2 well. The latest results from the Kingia reservoir have exceeded STX’s highest expectations and indicate a significant discovery with outstanding reservoir quality.
Latest Activity
West Erregulla-2 Well
STX and fellow Perth Basin operator, Warrego Energy (ASX: WGO) have confirmed that they have made a significant gas discovery within the Kingia sandstone as part of the West Erregulla-2 drilling campaign. The Kingia formation, one of the primary reservoir objectives within the well, was encountered at a depth of 4,753 metres.
Figure 1: Location of the West Erregulla Prospect within the onshore Perth Basin
Technical Discussion
Logs have confirmed a total Kingia sandstone interval of 117 metres, with a gross column of 97 metres. The lower section from 4,790 metres onwards is made up of several high-quality large units of clean sand, with thick blocky porosity development. This 67-metre section, which has high gas saturation throughout, is interpreted to have net pay of 41 metres and an average porosity of 14.3%, with peaks of up to 19%. Significantly, this average porosity is above the 11-12% pre-drill prognosis, indicating expected good permeability and well deliverability when the well is tested over the course of the coming weeks.
Technical Significance
STX described today’s release as “truly an exceptional outcome.” The results from the Kingia reservoir have exceeded the company’s highest expectations and indicate a significant discovery that appears to have higher reservoir quality than the nearby Waitsia gas field, which was the analogy for the well.
What’s even more significant is that with West Erregulla-2 now being one of the deepest wells ever drilled onshore Australia, “the subsurface paradigms of the Perth Basin are shifting,” according to STX.
The joint venture could well have unveiled a new conventional gas fairway, with the results so far validating their geological model. With gas discoveries in the Wagina and now the Kingia sandstones and the well drilling ahead to the High Cliff sandstones (which show an even better anomaly than the Kingia at West Erregulla), there is the potential of adding a further material discovery.
Next Steps
Permeabilities, formation pressures, fluid samples and cores from the Kingia sandstone will be taken via wireline tools when the well reaches its nominal final depth of 5,200 metres. The combination of observed gas at high pressure and excellent reservoir characteristics support the potential for high flow rates on a production test. Booking of a contingent resource will be subject to collecting this information.
Significantly, the well has not yet encountered a gas-water contact within the Kingia formation which, along with the excellent reservoir quality, is consistent with the seismic amplitude model that supports the interpreted field boundaries. The well is now drilling through the Bit Basher Shale on its way to the High Cliff target.
Project Overview
The West Erregulla-2 well lies adjacent to and is targeting analogous Permian gas sands of a similar size and nature as the Waitsia gas discovery. 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.
In addition to the Kingia-High Cliff target, a basal fan has been identified on the reprocessed seismic in the Wagina formation higher in the sequence. The Basal Wagina Fan shows similar attributes to the Beharra Springs gas field, which lies just 9km to the west. This target is being penetrated by the West Erregulla-2 well on its way to the KHC targets. Due to the stratigraphic nature of this play it represents a secondary target of the well, yet still displays the compelling amplitude responses which are geophysically indicative of gas-filled porosity. The drill results so far have demonstrated a likely success within the Wagina.
Summary
West Erregulla is one of the largest pre-drilled conventional onshore prospects in Australia and the recent developments in terms of the understanding of the Wagina discovery are very exciting. The results from the Kingia reservoir have exceeded the company’s highest expectations and indicate a significant discovery that appears to have higher reservoir quality than the nearby Waitsia gas field, which was the analogy for the well. What’s even more significant is that with West Erregulla-2 now being one of the deepest wells ever drilled onshore Australia, “the subsurface paradigms of the Perth Basin are shifting,” according to STX. The joint venture could well have unveiled a new conventional gas fairway, with the results so far validating their geological model. The market obviously likes the progress STX is making, with its share price closing up from a 12-month low of $0.054 in late June to a current price of $0.28 – a gain of 418% in just two months.
