Strike Energy (ASX:STX) share price slides despite continuing exploration success

Gas is expected to play an important role in the global decarbonisation effort.

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Key points

  • Strike Energy scores successful exploration results in Perth Basin
  • Gas demand is forecast to grow over the coming decade
  • Global urea shortages disrupt critical diesel fuel additive

The Strike Energy Ltd (ASX: STX) share price is sliding in morning trade, down 3.9%.

The All Ordinaries Index (ASX: XAO) is deep in the red as well, currently down 1.1%.

Strike Energy is currently trading at 25 cents after closing at 26 cents per share yesterday.

Below, we look at some highlights from the company’s quarterly report, released this morning.

What did Strike Energy report?

  • The company spudded its 100% owned “potentially high impact” South Erregulla-1 well in the North Perth Basin on 15 January
  • Its Walyering-5 results confirmed the presence of high-quality, low CO2, conventional gas accumulation in the Central Perth Basin
  • Strike was awarded a $2 million grant for its Project Haber under the Federal Government’s Supply Chain Resilience Initiative
  • Strike Energy finished the quarter with approximately $41 million cash on hand and some $10 million in liquid investments

What else happened in the quarter?

Strike Energy’s share price will have received some support over the quarter from spot gas prices, which reached as high as $5.35/GJ at the end of 2021. The company reported that this is consistent with a continued tightening in the Western Australia gas market.

Strike also revealed that urea shortages impacting farmers across the world “reached acute levels”. This impacted the supply of AdBlue, a urea derivative diesel exhaust fluid. With the Gibson Island urea production plant slated to close this year, Strike’s Project Haber received support from the Federal and State Governments to expedite the project through to its financial close.

During the quarter the company also applied for a 1,750 square kilometre Geothermal Exploration Permit (GEP). This forms part of Strike’s plans for dedicated geothermal operations.

What did management say?

Commenting on the quarter gone by, Strike Energy’s CEO Stuart Nicholls said:

During the quarter, Strike continued its run of successful exploration and appraisal results in the Perth Basin, with the positive confirmation of a conventional gas accumulation at the Walyering-5 appraisal well.

Upon successful flow testing, Strike intends to re-start production from Walyering as soon as practicable and progress towards first cashflows, which with an aggressive development plan could come as early as the end of the current calendar year…

The company’s focus now turns to the execution of the South Erregulla 1 well that spudded in mid-January, and has the potential to unlock the gas feedstock for Project Haber, Strike’s fully integrated 1.4 mtpa low carbon urea manufacturing facility.

What’s next?

According to the Australian Energy Market Operator’s (AEMO) December 2021 report, “gas demand will continue to grow over the next decade”. AEMO reported that despite sufficient plant and pipeline capacity, it expects periods of potential supply shortfall after 2023.

Gas is also expected to play a critical role in the global decarbonisation transition. Atop provided baseload power, gas can help industry to produce the required resources to move towards electrification, including copper, lithium, nickel and iron ore.

Strike plans to commence production testing of its Walyering gas asset in the first quarter of 2022.

Strike Energy share price snapshot

The Strike Energy share price is down 20% since this time last year. By comparison the All Ords has gained 7% over the past 12 months.

In a big turnaround, Strike Energy’s shares have gained 42% over the last 3 months.

Should you invest $1,000 in Strike Energy right now?

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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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