Basin review, Cooper Basin

Within striking distance

In an interview with Gas Today, Mr Wrench said Strike Energy’s Southern Cooper Basin Gas Project could be just months away from reaching steady production and the company’s MD is confident that commercial production will follow soon thereafter.

“We have put the programs in place to achieve our goal of commercial production and supplying gas to the east coast”? he said.

“We are hoping to achieve steady production in the near term which we expect to lead to commercial production.”?

Strike Energy’s current permit holdings within the Cooper Basin equates to in excess of 9,200 sq km. Its PEL 96 permit, which houses its Klebb and Le Chiffre wells, is estimated to comprise a combined prospective and contingent resource of
4.5 Tcf.

Those promising facts alone have helped land the company significant gas supply contracts totalling in excess of 300 PJ for delivery over the next two decades.

Strike has signed three offtake agreements with Orica to deliver up to 250 PJ over
20 years, with manufacturing firm, Orora to deliver up to 45 PJ over 10 years and with Brickworks’ subsidiary Austral Bricks to deliver up 12.5 PJ over 10 years.

The company’s Cooper Basin Gas Project, which is located in the northeastern corner of South Australia has been Strike’s focus after an initial successful appraisal program in 2013.

In August 2015, the company announced that workover operations at the three Klebb wells have been completed and each of the three wells had been recommissioned for a third phase of production flow testing.

Sustained gas flows have been achieved at each well and initial results showed productivity has increased following the fracture stimulation at the Klebb-2 and -3 locations.

Wrench describes Strike’s unconventional resource targets in the Cooper Basin as “potential sweet spots”? – areas capable of achieving a low unit cost of supply that will sustain strong operating cash flows over the production life of the wells.

In a recent speech, Mr Wrench stated that sourcing lowest cost gas resources was key to solving the eastern states’ supply forecast of 40 Tcf over the next 20 years.

“We think our project has all the necessary fundamentals to be a sweet spot play,”? he said.

Since day one, Mr Wrench says the company has had a focus on keeping costs low in an effort to enter the domestic gas supply market at the most competitive price.

“The lower your costs structure, the easier it is to reach commercial threshold and your commercial production target,”? Wrench says.

“Strike is certainly focused on being cost competitive so we can give ourselves the best chance of commercial success.”?

It’s no secret that the past twelve months of dramatically lower oil prices has had a significant impact on oil and gas companies’ ability to fund exploration programs.

“Costs are out of control and I think everyone acknowledges that. We have seen over the past six to twelve months that activity has dried up quite significantly. As a result, there has been a big reduction in drilling costs, contracts and exploration activities.”?

But while many companies have been cutting back on their exploration activities, Strike has been able to take advantage of lower services costs.

Mr Wrench said with fewer companies undertaking exploration activities, access to services and rigs and contractors comes at much more reasonable rates.

“We are out there now doing activities at significantly lower costs from what we thought we could have done a year ago,”? he says.

“But on the flip side, of course as a company, our market value and capitalisation has been impacted by the whole sector’s decline, particularly smaller companies, have been struggling in the stock market to maintain their value.”?

Strike’s share price took a hit mid last year when global crude oil prices essentially halved. However the stock has recovered reflecting the company’s progress in the field.

“We have a very clear plan and we are just getting on with executing it,”?
Mr Wrench says.

Slowed exploration activities in the oil and gas sector may have helped Strike edge closer to its goal of commercialisation, but it could have far-reaching consequences for the sector as a whole down the track.

Describing exploration as the “lifeblood of the industry”?, Mr Wrench fears a sustained decline in activities in Australia’s oil and gas industry will lead to supply issues in the future.

“If you are not spending money on exploration, you are not going to find the next reserve or resource that will need to be developed to replace depleting existing reserves,”? he said, citing the Cooper Basin’s decreasing reserves.

“It is easy for the industry to slash expenditure very quickly on exploration to produce immediate capital savings, but the risk is that they are setting up a more acute problem down the track,”? he said.

“No exploration could mean no new reserves found or proven in coming years. At some point new reserves will need to be identified because production from all the fields, especially in the Cooper, is in quite steep decline. Reserve replacement is not meeting production decline.”?

Strike Energy is pushing on with their eyes firmly fixed on commercialisation of a significant new unconventional gas resource to supply forecast shortfalls in the Australian domestic gas market.

The company’s latest financial results show the firm has significant cash on hand of $11.7 million to support its current projects and even allow wider exploration.

“We are always trying to expand,”?
Mr Wrench said.

“We don’t have domestic production currently so we don’t have to worry about declining production yet, but we are all about creating value through developing
reserves. And that is exactly what we
are doing.

“There aren’t too many other companies out there at the moment that are pushing as hard as we are, and fair enough. But we have a pretty clear target in mind and to put it simply, we are going for it.”?

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