Here’s why the Strike Energy (ASX:STX) share price is surging today

The energy producer’s shares are starting the week on a positive note.

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The Strike Energy Ltd (ASX: STX) share price is pushing higher during early afternoon trade.

This follows the energy producer’s announcement and update on its proposed Phase 1 development of the West Erregulla gas field. The gas project is located about 230 kilometres north-east of Perth in the North Perth Basin in Western Australia.

At the time of writing, Strike Energy shares are swapping hands for 34 cents, up 4.62%.

What did Strike announce?

The company’s latest release has pushed up Strike Energy shares within reaching distance of its 52-week high of 41 cents.

In its statement, Strike Energy advised it is committed to acquiring the Phase 1 gas plant at West Erregulla.

The company stated that firm commitments with the Australian Gas Infrastructure Group (AGIG) have been made. Strike Energy is seeking to obtain long lead items for the proposed 87 terajoule per day gas processing plant.

The components to be bought have a gross value of $31.5 million. Pleasingly, West Erregulla joint venture parties will provide security against any break costs of the equipment.

Strike Energy and Warrego Energy Ltd (ASX: WGO) both hold a 50% joint venture interest in EP469 (West Erregulla).

Initial commitments of the procurement will be minimal but is expected to rise over time as the components are fabricated. Once AGIG undertake construction activities in Q4 2021, following environmental approval, long-lead items will form part of the gas processing plant. In-turn, this will see security payments refunded back to Strike Energy.

The company revealed that the parties can opt out of the procurement process before entering final agreements with AGIG. However, this would lead to significant break costs from the contracts with the vendors.

Strike managing director and CEO, Stuart Nicholls commented:

This is an exciting time for Strike as it formally crosses the line into development. Whilst only an initial commitment, this procurement paves the way for the beginning of the construction of the AGIG gas plant, which is central to Strike’s Greater Erregulla gas strategy.

AGIG have been a pleasure to work with to this point and the parties have found strong alignment in agreeing these important interim arrangements. The company looks forward to formalising the investment decision with AGIG in the near term.

About the Strike Energy share price

Over the past 12 months, Strike Energy shares have jumped close to 60%, and are up over 20% year-to-date. The company’s shares are sitting within the upper end of its 52-week range of 19 cents to 41 cents.

Strike Energy commands a market capitalisation of roughly $685 million, with 2 billion shares on its books.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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