Strike Energy Limited (ASX: STX) confirmed a gas discovery at the Strike-Warrego Joint Venture of West Erregulla in Perth basin. As part of a drilling campaign, Strike discovered gas at the Kingia sandstone.
Strike farmed into the exploration permit 469 with Warrego in early 2018 for the fifty per cent ownership and operatorship over the permit as it covered the Kingia High Cliff gas play, proven by the adjacent Waitsia field.
The Gas Discovery:
The company recovered the Logging While Drilling (LWD) tools to surface and undertook the log interpretation at the Kingia prospect. Strike encountered gas on a rock at 4,753 metres down the Kingia formation, which in turn, demonstrated a gross gas column of at least 97 meters.
As per the company, from 4,790 metres onwards, there are large units of clean sand of high quality. The section of 67 metres below 4,790 meters depth contains high gas saturation throughout, which is further anticipated by Strike to have a net pay of 41 metres with an average porosity of 14.3 per cent including up to 19 per cent peaks.
The well did not encounter gas-water contact in the Kingia formation, which, coupled with the superior reservoir quality, is consistent with a seismic amplitude model, which in turn, further supports the anticipated contour.
West Erregulla-2 and Forward Plan:
West Erregulla exploration well is yet to encounter High Cliff sands; however, Strike completed drilling through the Kingia sandstone, which further revealed the Bit Basher shale, and as on 27 August 2019, the depth of the well remains at 4,895 metres.
The company further plans to continue the drilling at the top of the Holmwood shale to a nominal final depth of 5,200 meters
Exposure in Cooper Basin:
Strike also holds exposure to the most prolific onshore hydrocarbon region in Australia-Cooper Basin. Strike’s prospect over the region includes PEL 94, PEL 95, PEL, 96 and PELA 640.
The company is focused on the rapid appraisal and commercialisation of these prospects to meet the domestic demand. STX signed three conditional gas off-take agreement for the prospects.
The PEL 94 and PEL 95 is operated by Beach Energy Limited (ASX: BPT), and Strike controls 35 and 50 per cent interest in PEL 94 and 95, respectively.
PEL 96 is operated by Strike, and the company holds 66.7 per cent interest over the prospect.
Domestic Gas Shortage:
Australia is now among the world’s leading LNG supplier in the international market, which in turn, has created a shortage in the domestic supply of natural gas. The shortfall in the local supply of natural gas opens gateways for many ASX-listed natural gas supplier such as Strike, Senex, Santos, etc.
The recent exploration of gas could help the company to address the domestic gas shortage issue in Australia, which, in turn, could prevent the chocking of the Australian LNG exports. The Australian LNG export is currently facing the risk of losing the market share to Qatar amid a shortfall in the natural gas supply, especially in Queensland and Victoria.
Strike Offtake for West Erregulla:
STX executed a Gas Sales Option Agreement in May 2019 with CSBP Limited- a Western Australia industrial gas user. Under the agreement, STX granted CSBP Limited an option to take up to 100 petajoules of gas, to be drawn at a maximum of 25 terajoules a day, post the production commencement from West Erregulla.
CSBP, under the option, paid the company an option fee of $5 million, and the option will lapse after 7.5 years of the completion of the West Erregulla-2 if CSBP does not exercise the option.
Under the agreement terms, if the West Erregulla-2 does not succeed, Strike would pay back 50 per cent of the option fee in either cash or shares.
STX on Charts:
STX on the Monthly Chart:
STX Monthly Chart (Source: Thomson Reuters)
On the monthly chart, the share price of the company gave a healthy breakout and with that, it broke the downtrend. The breakout was backed by heavy volume, which further emphasised on the bull strength over the stock.
However, the stock was again dominated by the bears and it fell to retest the breakout level. The failure of bears to bring the prices below the breakout range created buyers’ interest, and the share price of the company witnessed healthy gains over the past couple of months.
In the current month, August 2019, the stock surged up by 144 per cent to the level of A$0.305 (Day’s high on 30 August 2019) against the previous month close of A$0.125. On the monthly chart, the primary support for the stock is intact at A$0.253, and it should be monitored closely as a break below could again implement a short-term pressure.
STX on the Weekly Chart:
STX Weekly Chart (Source: Thomson Reuters)
On the weekly chart, the stock of the company witnessed a breakaway gap, and the prices went straight up, crossing the primary hurdle of A$0.178. The 14-day Relative Strength Index also witnessed a breakout; however, it is currently in the overbought zone on the weekly chart, which might lead to a slight price correction.
On the weekly chart, the support remains at A$0.178.
STX on the Daily Chart:
STX Daily Chart (Source: Thomson Reuters)
On the daily chart, the stock witnessed a promising cross of 21- and 200-days exponential moving averages (EMAs), and the prices went high with a breakaway gap. On the daily chart, the primary support for the share price of the company remains at A$0.16, while the secondary support could be provided by the 21-days EMA, which is currently at A$0.170 as the prices are trading above both the exponential moving averages.
STX Daily Chart (Source: Thomson Reuters)
On following the wave motion pattern, and post connecting the Fibonacci, we can observe that the stock price crossed the 161.8 per cent projected level from the points marked as 0,1,2 on the chart shown above. The stock price is currently oscillating around the 161.8 per cent projected level, which is at A$0.277, and the same projected level could act as short-term support for the share price of the company.
The stock delivered a return of 148.76 per cent in the past 5 years (from 29 August 2014 to 29 August 2019), and the share of the company delivered a return of 116.00 per cent in the last one year (from 29 August 2018 to 29 August 2019).
The recent uplift in the share price of the company supported a strong YTD return of 217.65 per cent (from 02 January 2019 to 29 August 2019) as well as strong returns of 264.86 per cent over the last six months (from 04 March 2019 to 29 August 2019).
The returns delivered by the stock over the last three months stood at 260.00 per cent, while the monthly returns for August stood at 116.00 per cent (from 29 July 2019 to 29 August 2019).
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