Why is the Strike Energy share price crashing 31% today?

This energy stock has lost half of its value in a month.

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It goes from bad to worse for the Strike Energy Ltd (ASX: STX) share price.

In afternoon trade, the energy producer's shares are down 31% to 20 cents.

This means that its shares are now down 55% since this time last month.

Why is the Strike Energy share price crashing?

Investors have been scrambling to the exits again on Tuesday after the company released another update on the South Erregulla project.

Last week, the company's shares were sold off after the release of a bitterly disappointing update on the well testing of South Erregulla-3 (SE-3).

Today, investors are hitting the sell button in response to the release of an update from well testing activities at South Erregulla-2 (SE-2).

According to the release, well testing has commenced with drilling and completion fluids being displaced from the well bore and brought to surface.

The company notes that gas and formation water is currently being produced to the surface where samples of both have been collected.

The presence of water appears to be why investors are selling down the Strike Energy share price. While the samples need to be analysed, it seems likely that this well could prove to be a dud.

And with SE-3 reporting the same last week, things are not looking good for the South Erregulla project.

This would be a blow given that the company has already secured foundation gas sales agreements for South Erregulla.

One small positive, though, is news that since its testing equipment departed SE-3, approximately 431 psi of well head pressure has been observed to have built up in the SE-3 well head and is continuing to rise.

Management believes this indicates some form of a pressure response from the primary formation in that well. So, it may not be the end of the road just yet.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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