Strike Energy will build its $137 million South Erregulla gas power plant, but a final call on its West Erregulla joint venture development with Hancock Prospecting has been pushed back.
Strike Energy will build its $137 million South Erregulla gas power plant, but a final call on its West Erregulla joint venture development with Hancock Prospecting has been pushed back.
Strike announced it had taken FID on South Erregulla ahead of its AGM this morning, committing to build the project to supply energy to the state’s electricity grid from October 2026.
The project will support the grid at peak times, having won lucrative capacity credits from the Australian Energy Market Operator to do so earlier in the year.
Strike expects it to pay back over four years from production, with an internal rate of return of 27 per cent and an operating life of 21 years.
The plant is a step away from Strike’s core business of gas production but will tap the South Erregulla gas field – a pivot taken by Strike after disappointing exploration results in February revealed the field was smaller than expected.
Strike managing director Stuart Nicholls told Business News the company had recognised its opportunity in a changing electricity market and taken FID to capitalise.
“I think ostensibly Strike saw itself as a gas company for a very long time,” he said.
Strike’s position at South Erregulla – near Dongara in the Perth Basin – places it at the northern tip of the South West Interconnected System.
Mr Nicholls said that made electricity production more economic for Strike than the state’s traditional offshore gas producers in Chevron, Woodside and Santos.
“Strike having an interruptible supply of natural gas inside the South West Interconnected System and being able to connect those reservoirs directly to the transmission lines here in WA is a real competitive differentiator, and a role Strike has sought out throughout the year,” he said.
The project will be funded by through a $217 million finance package with Macquarie Bank, and free cashflow from its existing Walyering gas project.
Strike became a gas producer in January at Walyering, the first part of a government-endorsed gas acceleration strategy by Strike on its Perth Basin assets.
Through that plan, FID on both the South Erregulla plant and Strike’s West Erregulla joint venture with Hancock Prospecting subsidiary Hancock Energy had been expected before the end of the year.
Hancock’s recent $1.1 billion acquisition of Mineral Resources’ nearby Lockyer gas project appears to have scuppered that target, as the company works to understand reassess its Perth Basin position.
“It’s probably fair to say the targeted final investment decision before the end of this year is slipping,” Mr Nicholls said.
“I don’t think anyone could have seen the transactions that would have taken place, including Hancock and Mineral Resources themselves.
“We’ve got to pay respect to those events and respect our joint venture partner, and make sure they’re given ample opportunity to identify synergies and benefits that may positively effect the economics of the West Erregulla development.”
Hancock entered West Erregulla after a bidding war with Strike for its former JV partner Warrego Energy – a saga in which MinRes played a decisive role in favour of Gina Rinehart’s company.
Mr Nicholls said Strike had been working on West Erregulla for several years, including three-and-a-half years of approvals, and was keen to push go on the JV project.
“Whist we are looking to be a good operator and accommodating joint venture partner to our friends at Hancock, we don’t have all the time in the world,” he said.
“It’s incredibly critical to both Strike and the state that we pursue that development, and it’s something that we will continue to push forward through the early part of next year.”
The Western Australian Planning Commission approved a $145 million gas processing facility at the West Erregulla site in October.
Strike’s share price was 2.3 per cent lower this morning, at 21c, giving it a market capitalisation of $616 million.
The value of the company’s shares has hovered around the 20-29c range since it announced the exploration results at South Erregulla during February, prompting a significant fall after it hit 50c in January.
Strike’s market capitalisation was $1.2 billion at the beginning of February.
In September, Strike chair John Poynton told shareholders the selldown was overdone and committed to restoring lost value in the company.
Strike’s AGM will be held in Perth at 11am today.
