Strike Energy Limited (STX) Earnings Call Transcript & Summary

Welcome to Strike Energy's First Half Financial Year 2026 webinar. We've got Peter Stokes, our Managing Director and Chief Executive Officer; and Tim Cooper, our Chief Financial Officer, joining us today. I'll hand over to Peter for an introduction, and Tim will take us through the financials -- the financial results before I hand back to Peter for an operations review, and then we'll do some Q&A at the end with the time remaining. Peter, over to you.

Thank you, Emma. Good morning, everyone, and thank you for joining the call this morning for the first half results. I'm really happy to have you join us, and we're happy to take questions at the end. There have been a number of questions that have come through the hub and online, and via text over the last couple of days. So we'll address as many of those as we can. And if -- and those that we're not able to, we'll certainly provide some additional responses to as well. I recognize and this has come through a couple of the questions that we haven't provided a lot of communications over the last couple of months other than more of the sort of regulatory updates and certainly announcing [indiscernible] West spud due in early April. Part of the reason and the key part of that is that the -- a number of the discussions we're having, particularly around a couple of our major projects are commercially sensitive. As soon as we have further information that we can share, we will certainly do that. Over the next couple of months, we'll also start the drilling at West. So there will be a continuous update coming from that drill as we work through that program. And also as we move through some of the other programs, particularly into commissioning of South Erregulla power plant, there will be a number of additional communications. And I'll talk through some of that time line and towards the end, also talk through some of the key milestones that we are working towards over the next couple of months. And I'd like to hand back to Tim now to take us through financials before I go through the operational side of the business.

Thanks, Peter, and welcome, everyone, on the call this morning. Thanks for joining us. I'll start with operations. And production at Walyering. Walyering totaling 3.8 [indiscernible] joules and the half is down on the same period from last year as we manage production alongside the purchase of third-party gas. [indiscernible] price of $7.37 a gigajoule resulting in revenue of $36 million and operating cash flow of $3 million. We closed December with a cash balance of $69.5 million and debt drawn on the Macquarie facility of $108.8 million, reflecting a net debt position of $39 million. The debt has been utilized for the project execution of South Erregulla Peaking Power plant, which is 77% complete and with capital expenditure in the period of [indiscernible] Total capital expenditure for the period of $99.5 million, which in addition to South Erregulla project included Walyering Compression, West Erregulla and Walyering West-1. You will have noticed the material uncertainty included in the audit report, the half year financial report. This refers primarily to uncommitted $15 million tranche within the Macquarie financing facility and the forecast completion of the South Erregulla Peaking Power Plant. The uncommitted nature of this facility has not changed from previously reported. However, it is subject to Macquarie Credit Committee approval at the time that Strike intends to draw down on that balance. We are engaged with Macquarie on a regular basis and do not foresee any concerns with the appropriate approvals being achieved in due course. South Erregulla Peaking project is a key objective for the company and is envisaged to generate significant cash flows. Therefore, its delivery on schedule and on budget is an important outcome for the business. Further, management continues to manage capital expenditure in a prudent manner and ensure that the best returns are generated for shareholders. Thanks, Peter. Back to you.

Thank you, Tim. Now going through the operations side of the business. So a lot of questions have come around West Erregulla. We're continuing to progress with West Erregulla with a number of commercial opportunities, both on the midstream, we're looking at options with our joint venture partner and certainly in the down -- sorry, in the upstream and then midstream processing, we're looking at a number of options there. We are also finalizing the pre-FID activities with our joint venture partner. But that said, we've already progressed a lot of that with drill availability, long lead items and approvals well underway to commence that work once we agree with the joint venture partner exactly what we will do pre-FID. South Erregulla, Tim alluded to, continues to progress extremely well. We're now nearing 80% complete overall. And a number of key components, the engine shed and facilities within the shed are nearly 100% complete now, and I'll go through that in a bit more detail. At Walyering, we continue to produce successfully through the last number of months. We had a short shutdown, planned maintenance shutdown prior to Christmas to install the heat exchanger, and that's done very well. And we're now working through the process of looking at how much we will ramp up that facility again ahead of doing the drilling at Walyering West. And then on the exploration front, we continue to plan the next stages of exploration, including the potential for a well at Ocean Hill and 3D seismic across the broader South Erregulla and Kadathinni, which we're looking at for early next year, and we're commencing the approvals processes that will enable us to do that. Going into West Erregulla in a little bit more detail. As you'll be aware, the West Erregulla asset has been included in the AEMO GSOO as part of the required supply for West Australian domestic gas into the future. It is a key focus for the West Australian government to have this asset developed, and we are certainly working with our joint venture partner to drive that process together and looking at how we develop the upstream, and then ultimately work through the various downstream options for both parties. We are working towards finalizing the independent reserve and resource estimate and still targeting to have that before the end of the quarter. And that's progressing well, and we expect that to reinforce the scale of the West Erregulla broader assets across the West Erregulla area in L25 and Erregulla Deep in L26. And that will also continue to provide further guidance around some of the work that we'll be doing in the pre-FID activities. It's an extremely large value-accretive development, and we want to make sure that we drive the most -- the best commercial outcome for Strike and our shareholders. And so we are working through that process to ensure that we maximize the value in the most efficient time frame as well. Moving on to South Erregulla. You'll see on the right-hand side of this is the photo of the shed now completely sealed with the engines installed and all of the filtration systems on the left-hand side as well. The power station is now 99% complete, as I said. We've had the provider of the Jenbacher units Clarke started the commissioning and that will get underway fully from next month, and we will have first gas from running through the plant towards the end of April, where we start to be able to do the low bank commissioning of those facilities. We're continuing to work through other key packages of work, which you'll see on the next slide as well. And we are seeing really positive increases in the benchmark reserve capacity credit, which continues to provide an increasing underpin for that facility and starting to work closely with Western Power on the key commissioning, which commences with them over the next month or so. So there are -- we continue to engage with them actively and are working with them to complete the works now. And you'll see on the following slide, the [Cry ] Switchyard, which will be handed over to Western Power with the steel pylons already in place. The large relay room being delivered to site and is now in place. And our 52 poles that run from the power station down to the Western Power area are now complete, and they will -- and will continue the last leg of the power line, the 1.5 kilometers that connect us into the SWIS at the end of our facility. We're still on target for 1st October operations. There are a number of processes that we work through, including the Western Power commissioning and AEMO credit application process, and we'll see that in the key milestones later on in the pack. We're well on track to be doing that. And as it says here, we expect the mechanical completion and then gas induction into the facility later in early Q2, and that will enable us to start running up the system over the next several months and do the end-to-end testing ahead of the AEMO [ creditation ] process. On to Walyering, I mentioned that we are continuing to progress well with the Walyering project. We released recently the intention to spud the Walyering West well. That's now locked in to start in early April. Earthworks are well underway on site. We have the plant -- the pad now being developed, the drill rigs lined up and will mobilize in the next couple of weeks. All of the materials were ordered last year, and we'll be able to start that in April with an expected drilling time of around 6 weeks to enable us to do testing. We've already done a number of the works ahead of a tie-in pipeline that will enable us to target an early '27 connection on success of [ Way ] West. But as we've said in previous presentations, our financials are not subject to [ Way ] West being successful. And to be prudent, we planned that, that is not. But however, as a business, we're very actively driving to make sure that we're ready to connect that gas on success. As Tim said, we've continued to deliver significant volume of gas in the half of 3.8 petajoules and generated some $36 million of revenue. As we were working towards installing the heat exchanger late last year, we scaled back some of our production and took the opportunity to buy gas in the market and still provide that to our customer where we were still in the money on that gas. We continue to ensure that we've got the right balance of commercial and production and are working now towards on the next slide, the compression units, which are now installed on site are being commissioned over the next couple of months, and they will come online towards the back end of Q2 as they required for the production at site. And at the moment, we're looking like we will ramp up over the next several months. That's just to be confirmed over the next month or so as we run the heat exchanger for a bit more time. And looking -- really looking forward to the drilling program. And as I said right at the start, we'll ensure that we continue to provide regular updates around that program as we start work on with the Ensign 970 rig that we've used previously in the business. Moving to Ocean Hill. During the half, we also announced the results of the 3D seismic work. We've been working over the last period to identify a drill -- initial drill location and have now landed on that position. We've been working through the regulatory approvals and land access. And during the next quarter or so, we intend to be able to provide some further detail on likely timing for the well that we proposed to do down at Ocean Hill. But based on that 3D seismic as we talked about at the time, the resource there looks very attractive and certainly something that we want to pursue, and also continue to drive what has underpinned strike over a long period of time, which is exploration success. So we're looking forward to working through that process. On Kadathinni, the very attractive large that we have or understand to have out to the east of South Erregulla. We are working towards approvals for a 3D seismic across this area and we expect to be able to get that over the next several months with an intention to run seismic post the farming season when we can get access to all of the pad up there and be able to run the seismic, a comprehensive 3D seismic across that area. In over the last several months, a number of other seismic surveys have been released into the market that we're able to include into our modeling around South Erregulla. But we also want to take that into the southern area. So we have a proposal to do -- which will be called the Minjiny 3D seismic, which will cover the South Erregulla area and identify additional drill targets for that to ensure that we are able to monetize the 45 or so TJs that we expect in that resource. Moving to strategic priorities. One thing that we have provided some updates on is the West Australian market. The government continues to push us and others to provide domestic gas into the market and provide -- ensure that we have -- that we can fill some of the gaps that are starting to emerge towards the back end of this decade and similarly provide firming capacity with our gas-fired generation. So we continue to engage the government regularly and closely around the planning that they require around additional power beyond the 85 megawatts that we currently will have online and looking at opportunities to bring that into the market, particularly as you may have picked up the reserve capacity benchmarking prices continue to increase. We expect to see that probably level off as additional battery and wind comes into the market, but the gas-fired power generation provides a key part to that renewable transition in that it provides the firming that as the coal-fired generation drops off, that will be missing from the market, and there's an opportunity for us to provide both the gas-fired generation, but also specific firming capacity in the form of synchronized condensers that enable to provide stability into the network well into next decade. The near-term reflection or key sort of milestones that we are working through over the next couple of months -- or sorry, till the end of the year, but particularly a couple of us right in front of us, certifying the West Erregulla and Erregulla Deep resources. We're working to have that, as I said, no later than the end of the quarter, but we're working to try and bring that forward. And as I said, that we expect that to continue to reaffirm the scale of the West Erregulla resource. The South Erregulla plant will have the benchmark reserve capacity credits for the '28, '29 year confirmed before the end of this quarter as well, and that will see -- we expect based on the draft numbers have further increased to nearly $492,000 a megawatt, which is up from the 360, the previous year and the $220,000 that we had in our FID analysis. Walyering West will be spudded in early April. So we're targeting around the 9th of April is the date that we start -- that we will do that. And as I said, construction of the pad, road access and mobilizing of the rig is well underway, and that rig will be on site at that point, and then we'll be ready to start doing. We've already done some of the early works, put some water and other things on site. The [indiscernible] West test, we expect to be done by the end of the quarter, and we'll be able to continue to provide updates to the market on that as well. Practical completion of the power plant will occur around the end of this -- of the second quarter. And that will be as part of the commissioning that we work through with Western Power and then as we work through the accreditation with AEMO for the reserve capacity credits, which will kick in from 1 October. I should say also that as we work through that commissioning and generate power, any power that we put into the grid, we also will be able to charge for that power and start to generate revenue for the power plant ahead of the 1 October reserve capacity credits. And the South Erregulla plant is still on track for start-up and full operations on 1 October. And as we work through that with Western Power, we have confidence that we're still on track for all of the works that need to happen. Key components of the plant, as I said, are certainly well progressed now and will be signed off over the next couple of months ahead of doing the run-up of the generators over in April once we have gas connected. We have run the packing loop of 8 kilometers that we've run down to one of our other wells so that we've got capacity sitting there to start up the generators for peak power. So really exciting project coming to a critical part of that project now. And then we expect that the reserve capacity credits, while we'll have what will be called a temporary reserve capacity credits that gets formalized a month or 2 after the power plant goes live, but we will be able to claim those reserve capacity credits from 1 October. And then one of the other things critical for us is the FID decision for West Erregulla, and we're looking to still do that in the back end -- before the back end of this year, subject to working through some of the downstream processing and certainly finalizing timing around pre-FID activities, but we're doing everything we can to accelerate that from approvals and other parts, and certainly ensuring that we and our joint venture partner have the right commercial options to take that forward. But there are a number of areas that we'll continue to explore for how we might exploit the gas out of that really, really exciting resource. So strategic priorities for us continue to be deliver on what we said we're going to do. So we need to focus on delivering the South Erregulla power plant. And as Tim alluded to early on, we have to deliver that project on time and on budget, and we're confident that we are on track to do that. We need to -- we will need to generate that additional revenue will enable us to start to do some of the other activities that I spoke about around exploration, moving into some of the other areas like Kadathinni and Ocean Hill but also starting to ensure that we're exploring other opportunities, getting ready for West Erregulla development and the like as well. The activities there will only increase as we move towards FID and beyond. We're optimizing the Walyering production profile and looking at through options at the moment to increase the production out of that field again, which will enable us to generate more highly profitable revenue. We've been able to run 2 of the other wells over the last several months, so W 6 and W 7 are producing. W 7, we've been doing some additional trials, and it's producing good gas and a lot of condensate. So we're managing the levels of condensate well so that we can run that export send that condensate to South Australia for processing. We're very focused on a disciplined cost base across the business. We're always looking for ways to optimize our costs, but also deliver [value] with the resources and capability that we've got in the business, and it's critical for us that we continue to do that. We're very focused on a defined way forward on West Erregulla and having a clear pathway that we can share with the market and clearly understand it has a huge impact for all of us on share price for the business and a key part of the future of the Strike business. And so it is an absolute focus from myself and Tim and the commercial team, and our legal teams as well to ensure that we are driving that process forward. It is something we're working on every day. But I think importantly, underpinning all of that is continuing to drive what Strike is known for, which is a successful exploration pipeline and delivering along on some of those key assets that I talked about, including further exploration on our current assets, but also moving into certainly looking at the opportunities for developing the Kadathinni and Ocean Hill leases that we have as well and making sure that we are getting the best that we can out of the extensive portfolio that we have across the Perth Basin. And I should say, I think, as I said when I first joined, I'm extremely excited about the opportunities that we have in the business to develop these assets. It may feel like things are going slower than we'd like. But I think for us, ensuring that we firm up our revenue from South Erregulla and Walyering is critical to enabling the future in the business and ensuring that we can efficiently deliver West Erregulla and then take advantage of the exploration opportunities in front of us. On that note, thank you for everyone for attending. I'll hand back to Emma to take us through the questions. Tim and I, and Emma will answer those. Please keep sending through questions if you have any, and we'll address those as best we can. Thank you.

Great. Thanks, Peter. I might start off with one that we've been having a few questions on lately, and we did address it in the report, but perhaps not so much in the presentation. And that's the purchase of the pilot land. If you want to maybe elaborate on that a bit for people.

Yes. Thanks, Emma. So the pilot land that we bought is immediately to the north of the South Erregulla asset. It was -- the power line that we run to Western Power runs through that pilot land or the Heitman Farm. And so we wanted to make sure that we secured that asset to enable us or the option on that to enable us to ensure that we could provide the easements to Western Power, but also certainty over ours. It also sits strategically between a couple of our assets and gives us some other options as we look for future development across the key assets.

Yes. Great. And maybe another one that we've been getting quite a few questions on, and there's a lot of interest is perhaps you can talk a bit about what Hancock's proposed Belisama gas plant might mean for Strike?

Yes. I mean I think for us, the addition -- or the announcement of the additional plant is really exciting for the basin. I think for me, a couple of things were important. Having now seen Waitsia up and running and ramping up certainly changes the context in the Perth Basin. There was a lot of angst about could that plant be up and operating given the delays. I think that was one big milestone. I think having a large partner like Hancock announcing a significant plant in the basin too continues to provide real certainty around the infrastructure that will be in the basin. It gives us a very good option for processing of the downstream gas from West Erregulla. You may be aware it sits almost adjacent, some 4 or 5 kilometers north of the West Erregulla asset. It's a significant power plant it has and it's progressing well. We continue to talk to Hancock about options with that facility. And they are actively continue to develop their assets to the north of us as well, which is only positive for the basin and having options around infrastructure, I think, is critical for us to ensure that we drive the best commercial outcome for Strike.

Great. We're not getting too many questions in. I've got one other one, but if anybody -- if you hit the chat button and you want to ask a question, please feel free. We do have another question around just wanting to understand, are the Board and management aware of the Carnarvon shares coming out of escrow in July? And what is management doing to make sure that they're in the best position when that happens?

Yes. Tim might want to jump in on this one as well. But for us, critical is delivering what we said we're going to. The premise of Carnarvon investing was on the basis of us delivering against key projects being South Erregulla, having a path forward on West Erregulla, delivering on an ongoing basis at Walyering and then having plans clear on our exploration assets into the future. So from an operational context, we're absolutely focused on delivering against all of those. Clearly, there are potential corporate activities around that coming out. We're very focused on understanding where that goes. We continue to engage with Carnarvon. As you'd be aware, we have Will Barker on our Board representing Carnarvon as well. And so we're working closely with Carnarvon, but we'll continue to plan and deliver. And I think the best thing we can do is deliver on the plan and more and that ensures that the Carnarvon investment is secure and gives us options beyond that point.

Yes. Great. Tim, maybe one for you. On the Western Power, on the additional costs at South Erregulla with regards to Western Power, are we seeing any action in that space?

Thanks, Emma. Yes, we are. We've been engaged with Western Power and government and a number of departments of government over the past few months. Those conversations are progressing and we'd be hopeful to be able to communicate an outcome in the coming couple of months.

Peter, there's a very broad question here, but are there any asset sales planned in the near future?

Simple answer is no. I think for us into the future, looking at farm-ins and other things is certainly is always on the cards, but we're certainly not looking to sell any assets.

Great. And then probably follows on, there's another one here that says, given the continuing dislocation in our share price relative to our asset, has the company considered selling West Erregulla to Hancock and monetizing the asset to support the share price?

Yes. I think even before my time, I think there were some discussions. There's not a discussion with Hancock around the sale of West Erregulla. Hancock are very focused on building out the Belisama gas plant, monetizing their assets to the north of ours. And ideally, they would want to put their West Erregulla gas through that plant as well, and we need to work through the options for us as well. But I think simple answer is no at the moment.

Great. We're not getting too many other questions in. So we might wrap it up there and look forward to speaking with shareholders soon when we've got some more news to share.

Thank you, everyone, for joining us today. I really appreciate your time and keep providing feedback. I know Emma gets a lot of calls from a lot of you. So and we're happy to talk to shareholders through that process as well. Thank you very much.