old article but worth a read, sorry if it has been posted before.
Strike it Lucky
With two prospects coming up aces in the United States and Australia, these are exciting times for Australian explorer Strike Energy Limited. While the US prospect is likely to generate cash flow first, it’s the Australian project that has turned industry expectations on their heads.
Strike Energy’s (ASX: STX) USA prospect in the high-profile Eagle Ford Shale is where the company is drilling its first production test well. The Bigham 1H well spudded on schedule in early June and initial production results are expected in October this year following a multi-stage fracture stimulation program. Subject to a successful production test, that well is forecast to be generating cash flow before the end of the year.
Certainly it has a good location: the Eagle Ford, a shale play in Southern Texas is one of “the hottest shale oil and gas plays in the States; one of the leading oil and gas plays in the current market,” says Strike Energy Managing Director David Wrench. The Eagle Ford Shale is crowded with hundreds of drilling rigs, which Wrench attributes to the area’s abundant potential.
“The results coming out of the play are exceptional and as it’s being developed it’s proving to be an excellent producing area with very good production rates, a very good quality mix of gas and liquids, which means that the wells and the development economics are very favourable,” says Wrench.
Strike Energy is in the enviable position of having leased almost 10,000 net acres in this hotspot. And if the Bigham 1H well is successful, Strike has another 75 well locations available.
While Strike Energy’s Eagle Ford Shale development will generate cash flow in the near-term, it’s the company’s Australian project that has turned up some very exciting and unexpected results.
Strike has recently drilled two unconventional evaluation wells in South Australia’s Cooper Basin, the Marsden 1 well located in PEL 95 (a 50-50 joint venture with Beach Energy Limited and the Davenport 1 well in PEL 94 (another jv with Beach at 50 per cent and minority partner Senex Energy Limited holding 15 per cent), both of which surprised with results exceeding expectations.
“The results we got from Marsden were very encouraging,” says Wrench. “We had good gas shows with heavy hydrocarbons. Then we drilled the Davenport well in PEL 94 and that well actually came up with a very surprising result in that we got very thick coals; in fact, the coal thicknesses we encountered are some of the thickest coals seams anywhere, certainly in the Cooper Basin.”
This was a surprising and encouraging result for Strike Energy as the volume of coal intersected is so much greater than expected and the preliminary gas content of that coal is high. Most importantly, it points to a very large resource, much greater than anticipated.
“The net thickness of coal we encountered at Davenport was 116 metres -- about three times more than we had anticipated,” says Wrench. “That’s what’s been very encouraging and exciting for us. It’s turned conventional wisdom regarding this part of the Cooper Basin upside down, in terms of our view, and the industry view on what’s there. No one expected this amount of coal to be in this area.”
Indeed, these results are especially impressive and unexpected, coming as they do from the much-explored Cooper Basin.
“Even though the Cooper Basin is well-known by Australian standards there are still significant areas that people don’t know much about and clearly we’ve demonstrated that,” says Wrench.
The Davenport find is still awaiting detailed analysis, after which the company plans to come out with a revised resource estimate for the area. Additional drilling in the early part of 2013 is the next step to follow up on the discovery and to test Strike Energy’s ability to extract a gas from the coal, and thus prove the commerciality of the find.
The money-making potential of the resource can only be helped by the fact that it sits so close to a pre-existing pipeline, a crucial factor in bringing the product to market.
“It’s hard enough trying to explore for and then develop an unconventional play. If you have to overlay a significant infrastructure cost burden on top of that, it really does make it difficult,” says Wrench. “In the Cooper Basin we’re fortunate, particularly with the projects we’re working on, we’re literally underneath an existing pipeline which has plenty of unused capacity, to the extent that if we’re successful in demonstrating a commercial production potential, getting access to market is relatively straightforward. If you make a discovery and develop a field you don’t have to build infrastructure to get that product to market and that’s a really important factor.”
Crucially, the infrastructure is connected to the markets most in need of gas, and the increase in gas price in the Eastern Australian market has made the exploration of unconventional sources of gas all the more attractive.
“Queensland -- that’s a market that is desperately short of gas, and the Cooper Basin is directly connected through its existing pipeline to that market,” says Wrench. “The gas pipeline infrastructure from the Cooper Basin goes directly into Queensland, New South Wales and South Australia, all of which is essentially interconnected from a gas perspective.”
There is no doubt, however, that the infrastructure existing around the Eagle Ford Shale prospect is much more highly developed, and thus more likely to result in monetization on a shorter timeline than the Cooper Basin prospects, despite the vastness of those resources.
“The things we’re working on in the Cooper Basin are much larger projects in terms of reserve and resource potential than we have in the U.S. but they’re at a much earlier stage,” says Wrench. “On the one hand Australia has huge resource potential and huge projects, but at an early stage; while in the U.S. we have smaller projects which are still quite significant but much, much easier to commercialise.”
“We’ll be getting revenues from the Eagle Ford immediately once we start production in October/ November. In Australia it’s a much longer process because there’s nowhere near the same infrastructure in place.”
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