Strike Energy and Warrego Energy have executed an agreement to ensure both West Erregulla joint venture partners are aligned on the development plan for the gas field onshore Western Australia.
The binding heads of agreement (HOA) provides an agreed pathway for the phase one development of West Erregulla, which includes gas processing and plant capacity, gas balancing and sales, and optimising the timing and alignment of critical activities, including a final investment decision (FID) and the drilling campaign.
The phase one development of the Perth Basin prospect is subject to a FID being taken by the JV by the end of the first quarter in 2021.
Strike managing director and chief executive officer Stuart Nicholls said the agreement provided greater certainty for the phase one project development.
“Generating a fully aligned way forward will ultimately lead to more competitive outcomes across all facets of the project. We look forward to implementing our new agreement and preparing the joint FID early next year,” Nicholls said.
On the back of substantial foundation gas sales by both companies, the joint venture has agreed on an increase in phase one capacity to 80 terajoules a day (TJ/d) being delivered to the Dampier to Bunbury Natural gas pipeline (DNNGP).
The Australian Gas Infrastructure Group (AGIG) remains the preferred proponent to build, own and operate the facility and will complete a supplementary front end engineering design (FEED) study for the larger capacity plant by the end of 2020.
Warrego executive director and CEO David Biggs added that the construction of a single gas processing plant provides capital and operational efficiencies to both companies.
“Importantly, it provides greater certainty to existing and future gas customers, regulators and stakeholders and is another significant step in de-risking the project,” Biggs said.
The JV advised is set to consider a FID by the end of the first quarter of 2021 following the drilling, testing and evaluation of the West Erregulla 3 and the West Erregulla 4 appraisal wells.
The target date for the first gas sales from the West Erregulla project remains mid-2022, with the joint venture already approving the addition of West Erregulla 5 to the current drilling campaign.
“Results from West Erregulla 3, which is currently being drilled, and West Erregulla 4 have the potential to enhance our view of reserves and resources as we moves toward FID in 2021,” Biggs said.
Warrego and Strike have also entered into a gas balancing arrangement to align the interests of both companies, to ensure the seamless delivery of sales gas to foundation gas customers and allow the joint ventures to sell uncorrected gas on an equal basis.
In addition, Strike Energy has finalised terms with Macquarie Bank for $28 million in funding to cover appraisal drilling and long lead items for the development of the West Erregulla phase one gas project.
The debt facility will provide Strike with project finance, pending it securing senior project financing for the West Erregulla phase one development.
Strike outlined that the facility would be broken up into two tranches, the first being $13 million, which is subject to documentations and conditions. The second tranche of $15 million is subject to certain drilling milestones and further lender conditions and approvals.
Nicholls said the facility provided strength and flexibility to the company’s balance sheet.
“The timing of the funding is important as it is allows Strike to secure its financing requirements over a period of heightened operational expenditure during a seasonal slowdown in capital markets,” Nicholls said.
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