Why the Strike Energy (ASX:STX) share price powered up today

The Strike Energy Ltd (ASX: STX) share price is rising today after the company announced it would enter the renewable energy market. We look at the company’s latest deal.

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The Strike Energy Ltd (ASX: STX) share price has been rising today. The positive movement comes after the company announced it would enter the renewable energy market.

At the time of writing, shares in the oil and gas explorer are trading for 33 cents each – up 4.76%. By comparison, the S&P/ASX All Ordinaries Index (ASX: XAO) is up 0.56%.

Let’s take a closer look at Strike Energy’s announcement.

What did Strike Energy announce?

In a statement to the ASX, Strike Energy announced it had signed a “nonbinding term sheet to acquire 100% of the existing geothermal rights of the Perth Basin via the acquisition of Mid-West Geothermal Power Pty Ltd (MWGP).”

The deal, if executed, will involve Strike issuing $2 million worth of shares to MWGP. If the permit to explore for geothermal energy is approved, Strike will issue a further $1 million worth of shares to MWGP – subject to shareholder approval.

Strike, which already operates several gas fields in the Perth Basin, claims there is “strong” geothermal energy potential in the area.

The company listed five attributes of the area it believes indicate the high potential for geothermal energy:

  1. Extensive and thick sandstone across a wide area
  2. Static measured temperature of 150C to 200C
  3. A high level of absorbency in deeper regions
  4. Evidence of “extremely hot” water where gas is not present
  5. Very high reservoir pressures.

Strike Energy believes, should the transaction proceed, it will drive down well costs and generate longer term cash flows through improved economies of scale. The company states this to be so as it believes geothermal and gas operations are “highly complementary” of each other.

Strike Energy management commentary

Strike Energy managing director and CEO Stuart Nicholls said:

Between Strike’s gas resources and potential future geothermal power, the Perth Basin could be a supplier of low cost and low to zero carbon energy into WA for more than 50 years.

As one of the leading experts of the Perth Basin’s Permian sandstones Strike has recognised the renewable energy potential of the area which it believes could be a unique nationally significant geothermal resource.

This geothermal resource is 100% complementary to Strike’s existing gas business and has the potential to generate meaningful operational and subsurface synergies with Strike’s substantial gas interests.

MWGP Director, Mark Ballesteros, commented:

We believe the North Perth Basin contains one of the most prospective geothermal resources in Australia and has the potential to supply enough zero-emission, baseload power to make a significant contribution to reducing carbon emissions in Western Australia. We are excited to be consolidating with Strike and recognise that their technical and operational expertise offers immense synergies that will facilitate realising the substantial geothermal potential of the area.

Integrating gas, energy, and manufacturing operations

Strike also announced its belief that the geothermal energy could be used to power its fertiliser plant, which it says would  involve zero emissions.

The company also believes it can sell potential excess energy into the WA electrical grid.

The Strike share price is currently up more than 13%, year to date, and the company has a market capitalisation of $560 million.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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