Strike Energy Limited (STX) Earnings Call Transcript & Summary

All righty. Let's kick things off at 8:30. Good morning, everyone, and welcome to Strike Energy's Q4 FY '25 Quarterly Activities and Financial Webinar. Thanks for joining us this morning. We're going to run this very similar to the way we have in the past. I'm joined by Peter Stokes, Managing Director and Chief Executive Officer; and our Chief Financial Officer, Tim Cooper. Shortly, I'll hand over to Peter to give a presentation, and then we will follow this up with a Q&A at the end of the session. Thanks to those who have already submitted some questions. [Operator Instructions] And this will be -- the session will be recorded and posted on our website by around this afternoon. So over to you, Peter.

Thanks, Emma, and welcome to the call as well. I really appreciate the opportunity to talk to you all. And as Emma said, we're happy to take as many questions as we can at the end. And I think the other thing we'll also do is try and address any that we can't get through. We often said we get quite a few and we'll go through the ones that have been posted already first and then try and address as many as others as we can. The front slide, you'll see there, we've had a lot of progress up at South Erregulla on our Precinct on the farm that we own. You can see in the background there, that's the engine shed. It's about half built now. So the roof and other parts are on most of the shed now as well. And in the foreground, you'll see the makeover of the key gas well that we are doing the work on at the moment. So you can take away from that is that we're progressing really well with our integrated power solution up at South Erregulla. We're still very focused on ensuring that we get that online by the 1st of October next year, and we've been getting senior management up there regularly to engage with the teams on site and the various contractors as well as ensuring that we're still driving that progress and in parallel, engaging with key authorities and government to ensure that all of various parts that we're working towards, particularly with Western Power on the line, the connection line, which we'll come to a bit later is all in place so that we can go live as planned. If we just go to the next one, please, Emma. So in summary, I think a couple of things. The last time we were on the webinar, we talked about the strategic review. We've now -- and we're happy to go through some of that -- we'll pick up some of the key points from that, and it's a critical part of where we are now and where we're heading. Also wanted to ensure that we've now done the transition. Jill Hoffmann has handed over to me to lead the company. I want to thank Jill for all the work that she did while she was at the seat for the last 6 months or so. Last week, we announced the strategic investment by Carnarvon in the business of $88 million via a placement, in addition to the $10 million share purchase plan that we'll have in parallel and with the option to increase that by another $5 million if there's that level of interest. Ocean Hill continues to progress well, and we'll be able to provide an update with the full year results that the Ocean Hill 3D seismic work has identified a number of really attractive targets that we're looking to do an exploration well on in the back end of next year. And as I said, the 85-megawatt peaking plant at South Erregulla continues to progress well. On that note, I'll hand over to Tim to talk through some of the financials, and then I'll pick up the operational part of the business again.

Thanks, Peter, and welcome, everyone, this morning. Look, it's been a strong quarter for Strike. Sales revenue at $18.3 million. The operations team has done a great job in maintaining production at 25 terajoules a day to meet our firm contracts for a total of 2.3 petajoules. The realized price there for gas and condensate, the reduction there is just a reflection of the U.S.-denominated contracts and foreign exchange. On exploration and appraisal, that's predominantly the Natta 3D seismic work, of which we've communicated previously that, that's with independent certifiers at the moment and expecting those results and share those with the market in December '25. Development expenditure in line with current forecast on South Erregulla peaking power plant at $21 million and the Walyering compression project of $1.7 million, that compression is expected online in January to support ongoing production at Walyering. Available liquidity is a combination of cash at 30 June and undrawn debt of $76 million. And I can confirm that, that tranche 1 cash $51.6 million has been received from Carnarvon already. So I think well placed going forward after a strong quarter. And Peter, I can hand back to you.

Thanks, Tim. I'll run through each of the projects, the status in the last quarter. So starting with West Erregulla and Erregulla Deep. So a key part of this strategic placement enables us to continue to work down towards FID at the back end of next year, which is our target. We're working closely with our joint venture partner on doing that. We will refine the works that need to be done at least one well and a couple of makeovers over the next number of months. We're working through, as Tim said, on the Erregulla Deep seismic work from the Natta survey, our seismic work. And then we're also looking at working through what the downstream developments look like for both ourselves and our joint venture partner. On South Erregulla, the integrated power plant continues well on target for construction. And we're now looking at the option of an additional 15-megawatt expansion and which would come online a year after the current project goes live next year. At Walyering, we're producing online, producing at nearly 98% capacity at the moment. We're producing 25 terajoules a day to both -- with gas going to both Santos and Alinta. We generated around $70 million of revenue for this last year. The field -- and we're now working on a number of projects, including compression and near-field exploration to continue to ensure that we can develop -- can produce at similar rates and ongoing for that project through to the end of the Santos contract. Exploration-wise, the seismic data that we've done around Ocean Hill is in final stages of interpretation. That's been taken through third-party verification, and we'll share that as part of the year-end results. But as we said earlier, that's looking quite perspective from what we're seeing. The strategic placement really enables us to then look at options of how we move that forward of that project, subject to us locking in a couple of other key costs in the meantime. But our current intention is to start on the exploration well towards the end of next year. On the next slide, the rationale for the transaction with Carnarvon. So we have $85 million to $88 million strategic placement by Carnarvon in Strike via 2 tranche equity investment. Issue price was $0.12 as we had talked through last week, with the tranche 2 being subject to shareholder approval, and I'll run through some of those dates shortly. There's a non-underwritten SPP for up to $30,000 a shareholder at the issue price to raise an additional $10 million with the ability to accept those subscription for another $5 million, subject to shareholder approval during next month. Key purpose of the strategic placement, it really enables us to deliver on the strategic plan that we talked about earlier. Four key areas that we'll focus on: taking West Erregulla to FID, finalizing and getting the revenue generated from South Erregulla, working through an expansion of South Erregulla, doing the additional work at Walyering to ensure that it continues to produce at current flows. And then towards the end of next year, as we start to generate funds or revenue out of South Erregulla, the ability to commence our exploration at Ocean Hill and then down the track at Kadathinni as well. It really -- it enables us really to deliver on those -- on the strategy of the business, ensures that we can then start to deliver our integrated solution. And it also now starts to give us options about how we and our joint venture partner develop the West Erregulla project beyond next year once we've got FID in place. The timetable, which was outlined last week, the placement was announced on the 22nd settlement, as Tim said, actually happened last week. So on Friday, we received the funds. There will be an extraordinary meeting on the 11th of September. And the record date for eligibility of the -- in the SPP was last -- at 5:00 p.m. on the 21st. The documents will come out on the 8th of August and then with the extraordinary meeting on the 11th of September and a close date for the SPP on the 18th of September with the announcement of the SPP participation and results and issue of shares on the 25th of September. Just to really reiterate what we talked about in this strategic review update. Strike as a business is exceptionally well placed in the WA energy market to be a critical enabler, both for power generation and gas. It's very clear from some of the recent announcements, from the government and the various authorities that there is a looming gas gap and also a large opportunity for gas-fired, both peaking and mid-merit power over the next number of years. We will be able to deliver reliable and responsive gas. So our peaking plant is able to start up on short notice. As we alluded to last year in FID, it will run around 20% of the time and fill a critical gap with the renewables that are now in the market in the evenings. As battery power runs out, the peaking power becomes a critical part of that. It's been strongly endorsed by the government, and that's reiterated by the encouragement to put an additional 15 megawatts as well as what we've been talking about for West Erregulla where we're looking to use that gas to generate -- to provide an additional around 200 megawatts of mid-merit power. So as we work through FID next year, those options will become much clearer on West Erregulla. It's also very clear in the WA market that there are declining gas reserves, and we're well placed to provide additional gas through a number of our assets, whether that'd be West Erregulla, Walyering and Ocean Hill and down the track Kadathinni also. There's also some of the policy shifts that the government is now starting to make, really providing opportunities for us to provide gas into the domestic market as well as additional power into the market as it's required. So in summary, the investment highlights for the business as we are Western Australia's newest gas provider, we'll become the first fully integrated gas-to-power provider in Australia and unlocking -- thereby unlocking higher margin opportunities for the business. We have a high-quality asset base, we've got Tier 1 resources in a location that's very well located, both between the 2 key pipelines in Western Australia, but also importantly, close to the electrical infrastructure, so we can connect into that and provide additional power. We do have options of how with the downstream optionality of what we do at West Erregulla, and there are a few options that will become clearer as we work through towards FID next year. And so that would -- our intention is to have -- get to FID with our joint venture partner by the end of next year and then be able to -- in parallel with that lay out the options of where we will go with that gas from West Erregulla. Our Walyering project was successfully delivered and continues to produce gas at very high availability and it was delivered in a very short time frame. The funding that we now have ensures that we are fully funded through to develop our core projects as outlined in the strategic review. On that note, Emma, I'll hand back to you, and we can start to go through some of the questions that have started to come through.

Okay. Thank you, Peter. Yes, we might kick off with probably the most asked question that we've had come through, and that is to help everyone understand in detail the cost increase behind the Western power costs. So like what assumptions have changed since FID? Yes, you can help us go through that.

Sure. So I think as we talked to last week in our announcement, there has been an increase in the South Erregulla overall cost. The core cost of what we've done there, there's about a 10% increase in the directly controllable costs by Strike. And I think that the area that we're working through at the moment and we've taken a conservative view of what we need to do to link our power plant into the network, we're working closely with Western Power to really get to the bottom of exactly what the costing will be. So what we've got is the total cost to integrate our power plant into the power grid near Three Springs, quite 15 kilometers from our property. A number of parts of that are now locked in and clear. A number of other parts as we work through with Western Power, it's clear that both the line capacity -- the lines are near -- or the infrastructure is near capacity. And we also need to agree with Western Power what is actually shared infrastructure and what will be ours. And so that's an ongoing discussion with the Western Power team and our technical team. As that becomes clearer, we'll make -- we'll be able to make some announcements of where that gets to. The second part of that is that we will work with Western Power on different ways to fund that so that we'll look at options of whether there's some joint funding of that of the capital that's required, potential to recover some of that then from -- by Western Power through tariffs and/or us through the energy that we provide so that there's not a full upfront. But to be conservative, we've taken a view to -- in our planning that we have the full $30 million in there at the moment. There are some rebates that will come through that as well, but we haven't finalized that yet. So we've taken, as I said, a pretty conservative view to ensure that there's no additional costs that come through for South Erregulla. And we're also -- we're pushing forward that project forward as quickly as we can, including the testing that needs to be done. So the planning around that testing to ensure that we're on line before -- by or before the 1st of October next year.

Yes. Great. That leads into the next part of the question, which was have there been any delays to the project? And do you -- are you still confident in the 1st of October 2026 deadline to get the capacity credits? And when do the engines arrive in country?

Yes. So we maybe take the last one first. So the first of our engines, they're coming in, in 2s and 3s each month. The first will arrive late next month, early September. So they're already being shipped. We have 20 engines altogether. So they'll start arriving -- yes, 2s and 3s each month. We can then start to install those into the ship. All of the infrastructure shared is -- will be completed by the end of the month. And then key other components, mufflers and other things have started to arrive. The installation team will start on-site over the next couple of months and start putting those in. And then the infrastructure around those is being built in parallel. On the timing, we're confident that we can still hit the 1st of October next year. The back end several months is in place for coal testing with Western Power. Our joint intention is to try and reduce that testing time for the gensets and the integrated power solution. And that's what we're working to. But at the moment, that our time lines line up with delivery before October 1 next year.

Yes. And what options are available to defer the payment for that Western Power portion of scope? And if deferment is possible, will this make additional cash available for exploration at Walyering and Ocean Hill?

Yes. So I think -- so just to clear on that one, too. So we will do -- at the moment, we're -- in the way we've done our planning, we've assumed that we have to fund all of that $30 million from capital. Our discussions with Western Power, though, they are very open to different concepts around how they would contribute capital and recover some. And then also the other part we're working with them is what is shared infrastructure so that we would not -- that we would actually share the cost of whether that substations or connections or other things as well. So -- but the options for payment could be through tariffs that we get charged or through us providing energy and we don't get that full revenue, but we've effectively OpEx that cost as opposed to capital. Our intention is still subject to where that lands and the funding enables us with both tranches in place and the SPP. We will be funded to do the first Ocean Mill exploration hole back end of next year, by which time we'll have revenue coming in from both Walyering and South Erregulla power plant.

Great. And then there is a question around that, which hopefully this is answered, but maybe just to make it clear, why is the drilling for Ocean Hill to only planned for the latter part of next year? I know there's a lot of people who are excited to get Ocean Hill drilling and see what that has. But yes, as Peter said, we're -- we want to make sure our development projects are fully funded first.

Yes. So I think -- I mean that's pretty simply that, Emma. It's -- we want to ensure we've got revenue that the South Erregulla revenue-generating project up and running and delivering as planned. I think one of the things that we are coming in and seeing this fresh, it's easy to sort of look back. I think one of the challenges Strike's had before is we've tried to do everything at once. The strategic review is very clear on what we're going to do and not do. And we are very focused on the 4 projects that I talked about earlier. And I think that the sequence of doing those is critical, too. So firming up Walyering to ensure that it continues to produce and deliver the 20 TJs every month that we need to for Santos, ensuring that we get to FID with West Erregulla so that we can unlock what is our biggest source, I guess -- source of value in the business at the moment. It's a significant asset. And our share of that asset is around 40 TJs a day, so a significant asset that we and our joint venture partner are really focused on unlocking. Then thirdly, ensuring that we've got South Erregulla generating revenue and then in parallel with that, getting ready to do the Ocean Hill drilling. Some of the drilling that we need to do, there are some longer lead items. We're starting to get ready to -- or we are getting ready to get in those longer lead items for Walyering and then we'll be able to -- and then we'll start to look at the early orders that we need to for Ocean Hill to ensure that we can do that. We've secured a rig to do the 3 holes we want to do for next year. And so we're starting to -- we'll start to work through with our rig provider to ensure that, that program is clear for them as well and have that locked in to deliver the 3 wells that we will drill.

Great. We might move to Walyering. There's a few -- quite a few questions coming through on Walyering. If you could clarify if the proposed Walyering West well is to support 1P reserves or migrate contingent resource into reserve category? I might take this one. So Walyering West is a new field. So that's a separate field that sits out to the West of Walyering. We don't currently have any prospective or continued reserve or resource in that area. So any success of Walyering West will add reserves or resources to the Walyering West field. It's not to support Walyering field itself that way, and it's not a development well. So hopefully, that clarifies that. Peter...

Maybe just to add on that one is we have done 3D seismic across that now, too. So I think one of the things that we are ensuring that we do on all -- as we move from exploration into production, we as a group are generally happy with 2D to do exploration wells, although that said at Ocean Hill, we've now run 3D. And we'll do -- we've done 3D site or a combination of 3D and 2D for the West Walyering well. And so -- and that's -- and we also -- the other thing that we're doing on all of these is, one, independently verifying our proposed targets. And then also, as we have previously always done independently, we verify all of our reserves and updates that we're doing and that will flow into our August numbers when we do -- in our year-end numbers when we do an update of all the reserves across the group. And as Tim said, we'll have that for West Erregulla a bit later in the year. We're using another party to do that, and that's in progress. But that will be provided by the end of this calendar year.

Yes. Tim, maybe one for you on Walyering. We've got $1.7 million against the cost of Walyering compression in the quarterly. Is that the total cost? Or is there more to come? Can you provide some guidance around the cost per compression?

There is some further costs to come. We're leasing those units. So we'll see them in the operating cost as we move forward.

Yes. Cool. Great. Do we -- Peter, what is Strike's current estimate of the amount of recoverable gas in Walyering East? And is there any chance that, that will be tied into the facility in the future?

Yes. So Walyering East, currently, it's around 8.5 Bcf, but it's still subject to well testing. So we did that well. Our intention is when we do Walyering West and do the production testing there that we would swing that unit across to do Walyering East. We haven't given -- and we talked a little bit about this in the strategic review update. Given where it's located, unless there is significantly more gas for some reason where we currently think, our expectation is that we'll tie that into the facility a bit later in its life. So get Walyering West up and producing, it's about 2 or 3 kilometers to the west of the plant, and we can run -- connect that one in fairly simply. The connection to East is a little bit more challenging. We need to run under the highway and it's a little bit further distance. And there's some native vegetation that we'll need to get approvals for as well. So we do see it connecting in, albeit later into the life of the field.

Yes. Great. What is the expected field decline profile looking like for Walyering? And what is the contingency if Walyering West doesn't find additional gas? Tim, maybe that's one for you.

Yes. Look, if we don't find additional gas to backfill, I think there's potentially some extension in the field there. We have to work with the party Santos, in particular, around how we manage that gas supply. We are able to buy gas on market to backfill those contracts and supply at an alternate delivery point. We have engaged with Santos early on potential risks around compression. And we're quite supportive with Santos in engaging on that flexibility. In a worst-case scenario, there are LDs applicable to not delivering on that contract, and then we'll manage that risk as we move forward if it crystallizes.

Yes. Great. Back to Ocean hill briefly. There's a question that's come through from the Ocean Hill appraisal. Is there any obvious location for the exploration well? And will the risk resource update be provided to the market prior to the September 11 AGM?