- AGIG selected to build, own and operate Phase 1 gas processing plant; FEED underway.
- Ensign 970 drilling rig secured on long term contract for appraisal campaign.
- WE-3 lease, access tracks and drilling pad construction underway.
- Upstream FEED for gathering network and well control skids commenced.
- WA Government awarded Lead Agency Status to West Erregulla as a project of strategic importance to the WA economy.
- Reprocessed 2D data confirmed presence of gross 4-way closure over South Erregulla, indicating multi-TCF potential.
- Initial processed volumes from Trieste 3D seismic survey received. Walyering
- Upgrade to both Walyering Prospective Resource and probability of success from new 3D interpretation and Quantitative Interpretation (QI) modelling.
Comments from Managing Director & CEO Stuart Nicholls:
“Strike Energy continues to systematically deliver against its vision to become a major producer of domestic gas in Western Australia.
“Securing AGIG as the preferred proponent for our midstream development and starting FEED on the West Erregulla gas processing facility are major milestones supporting the delivery of our gas to market by 2022.
“The upcoming drilling campaign at West Erregulla is expected to deliver results and data that will not only support our gas commercialisation plans but also build further confidence in Strike’s Greater Erregulla gas strategy.”
West Erregulla (EP469)
In May 2020, Strike was notified by the Western Australian Department of Premier and Cabinet that the West Erregulla Gas Project had been awarded Lead Agency Status. Lead Agency support is granted to projects of a significant and strategic importance to the economy of Western Australia. Since this award, Strike has been closely working with the Department of Jobs, Tourism, Science and Innovation on the key approvals required to meet Strike’s aspired project development timeline.
West Erregulla - Upstream
During the quarter the EP469 JV approved the West Erregulla Appraisal Plan which added WE4 and, on a contingent basis, WE5 to the previously approved WE3 program. The drilling campaign for WE3 and WE4 is now firm with an option to include WE5, subject to final JV approval no later than November 2020.
Procurement processes for drilling rig services were completed during the quarter with Strike securing the Ensign 970 drilling rig on a long-term contract at attractive terms. Ensign has agreed to execute capital upgrades to the rig, including a significant increase in pumping capacity to support the larger bore hole diameter design of the appraisal wells.
Strike has now started the operational phase of the program having secured the required permits and approvals. Lease construction is well progressed with conductor installation to commence soon. Strike is currently targeting a late August / early September spud for WE3.
The location of WE3 has been chosen with the objective of confirming the continuity of the field on the northern side of the saddle feature that makes up the West Erregulla gas field. Strike interprets WE3 to have a high chance of success of confirming the presence of the extension of a commercially developable hydrocarbon accumulation. This is due to the analogous structural setting to Waitsia, where linked fault blocks are shown to be in communication despite significant throw observed in the seismic. At West Erregulla the throw is minimal and the amplitude response, which Strike has modelled as a direct indicator of hydrocarbon filled porous sands, is in a continuous phase across the blocks.
WE3 will primarily test the Kingia and High Cliff sandstones, which were the host reservoirs to the major gas discoveries in WE2. The Wagina gas discovery is interpreted to shut off to the North and is uncertain as to its presence in the northern fault block, as such the extent of the evaluation program for the Wagina in WE3 will be contingent upon drilling results with a more extensive firm program planned for WE4.
In the quarter Strike also completed its pre-FEED activities for the upstream field development which has included conceptual gathering networks for connection of the appraisal and development wells, pigging facilities, slug catcher and standardised well skids. The upstream development has progressed to a hybrid of FEED and detailed design work, with Australian engineering firm Aurecon awarded the Upstream FEED contract. Strike benefits from the use of Aurecon given their extensive upstream experience with a number of other onshore operators and recent involvement in the nearby Waitsia development.
Throughout the quarter Strike has progressed the Field Development and Field Management plans. These documents will form critical inputs to both the joint venture and the regulator to progress the West Erregulla project from a successful appraisal program to development and conversion of the Exploration Permit to a Production Licence. The progression of these two major documents is a positive step towards achieving the joint venture and permitting milestones for the targeted start-up of production operations in 2022.
West Erregulla is within EP469 in which Strike Energy Limited is operator and holder of a 50% interest in joint venture with Warrego Energy Limited which holds the remaining interest.
West Erregulla - Midstream
During the quarter Strike announced it has partnered with Australian gas infrastructure leader AGIG as the preferred proponent to design, build, own and operate a 50 TJ/day gas plant. The plant will process Strike’s gas from the proposed Phase 1 West Erregulla development under a long-term tolling arrangement.
Since this announcement, Strike and AGIG have commenced the FEED for the gas processing plant and associated raw gas pipeline. This will move towards long lead procurement in Q4 2020 in support of the targeted start-up milestone of 1H22.
The 50 TJ/d gas facility will be constructed adjacent to the West Erregulla gas field with a raw gas trunkline connecting to the West Erregulla upstream development, and will process raw gas to sales gas specification and deliver it into WA’s gas transmission network.
The project represents an investment of more than $200 million in infrastructure and services by AGIG under a competitively priced long-term tariff. This structure will avoid substantial upfront capital for Strike and improve the overall terms for its Phase 1 FID.
The contract award to AGIG and the infrastructure development are subject to execution of full form documentation consistent with agreed key terms, and conditions precedent including each party taking a final investment decision on their respective developments, all to be completed or satisfied by the end of 2020.
West Erregulla - Finance
During the quarter Strike progressed its project financing workstreams and has appointed Delaware Advisory as its financing advisor. Delaware Advisory is led by ex-Santos Treasurer John Gallagher who has a strong track-record of procuring efficient and fit for purpose project financing solutions for gas developments.
During the quarter, and as announced on 9 June 2020, Strike completed reprocessing of 23 historical 2D seismic lines of various vintages that cover the Greater Erregulla region. Late in the quarter Strike also received its first processed volumes of the Beach Energy Trieste 3D seismic.
The new data has greatly improved Strike’s structural interpretation of South Erregulla and confirms the presence of a gross 4-way dip closure over the Greater South Erregulla structure. The new data also indicates connectivity of the South Erregulla structure to West Erregulla which greatly improves our confidence in finding an equivalent trap-seal combination to West Erregulla that is likely to hold a conventional quality, hydrocarbon charged reservoir.
The internal reflectivity and stratigraphic imaging within the South Erregulla structure is also greatly improved. In some lines, amplitude blooms and seismic pushdown events similar to that seen at West Erregulla are observed within the South Erregulla structure.
Additional 2D lines are being reprocessed to generate further information on the target and surrounding areas. With the Trieste 3D seismic survey now initially processed in-house, Strike will begin taking South Erregulla through its proprietary geological and geophysical workflows. Should Strike identify a high confidence drilling location from the available datasets before acquiring the Minjiny 3D seismic survey, then planning may commence for an exploration well in CY21. This could allow South Erregulla to be incorporated into any decision around expansion of the AGIG infrastructure being proposed for the Phase 1 development at West Erregulla.
During the quarter Strike completed interpretation and modelling of the 3D seismic acquired by Strike over the Walyering gas discovery in late 2019. The excellent quality data indicates the presence of a high confidence wet-gas accumulation up-dip of the Walyering-4 well. An upgrade to the Prospective Resource has now been generated with the overall probability of success of proving a developable resource determined to be 38%. Added resolution and improved data quality has confirmed Strike’s initial interpretation of the dataset, that Walyering represents a robust, drillable wet-gas opportunity.
Strike owns 1,853 km˛ in the Jurassic wet-gas play trend, all at 100% equity interest. Success at Walyering will have a huge uplift on the valuation of the trend and the field is, therefore, being progressed towards appraisal drilling in CY21.
Piloting operations have continued during the quarter, with excellent uptime achieved. Daily average gas production has remained between ~20 mscf/d and ~40 mscf/d. Bottom hole pressure has been drawn down to 170-179 psig, with water production remaining stable at approximately 270 bbls/d. A material increase in the rate of gas production is yet to be achieved. Strike will continue the pilot into the following quarter and will further draw the bottom hole pressures down in search of a further gas response.
During the quarter Strike’s operations were centred on the development and appraisal drilling programs for West Erregulla. Strike also invested resources into its FEED programs and vendor selection for the planned upstream and midstream West Erregulla development. Strike finished the quarter with $21.6 million of cash on hand, and no debt, with its expenditure in line with forecasts.