Hi, everyone. Thank you for joining us today for Strike's Q1 FY 2025 quarterly results. We've had a really big and awesome quarter, some cool things going on with flow testing results and some major project milestones. So I'll let Stu take you through the results, and then at the end we'll have a Q&A session like normal. If you could use the Q&A button at the top to enter in any questions, we'll get through as many as possible. We do have a 9:30 A.M. hard finish today, so if there are any questions that we don't get to, I'll try and go through and get back to people via email, if their email's here, or feel free to give me a call or an email yourself. Over to you, Stu.
Thanks, Emma. No worries. We'll just get straight into it then. Thanks, everyone, for joining today at Strike's Q1 FY 2025 quarterly results and activities report. It's been another busy quarter at Strike. The quarter itself was highlighted by several key project milestones, as well as a couple of discoveries, as well, and solid production coming out of Walyering. Importantly, the Walyering facility produced at around 2.31 petajoules equivalent of gas and about 16,000 barrels of condensate for about 2.4 PJs all up. So production was up 2% quarter on quarter.
Unfortunately, due to some foreign exchange related issues, as well as some lower nominations across some of our as-available portfolio, sales revenue was down 8%, but it was still a pretty strong quarter, with AUD 18.3 million of cash generation. Major developments across the portfolio, the South Erregulla Peaking Gas Power Station, which is a project that continues to go from strength to strength, was awarded its full network access quantity and 85 MW of reserve capacity credits for the 2026, 2027 year, coming online in late 2026. Those capacity credits were priced towards the upper end of Strike's expectations, at around AUD 216,000 per megawatt per annum.
You know, resulting in a fixed government-backed revenue stream for the first year of operations of AUD 18.3 million outside of any energy sales and emergency services that the facility may provide. We also had two discoveries in the quarter. We successfully flow tested the Walyering-7 discovery at Walyering. That went into the plant, obviously avoiding, you know, avoidable carbon emissions, as well as generating revenues into the facility. That flow test resulted in a maximum rate of 14 TJs a day and up to 900 barrels a day of condensate. The tie-in of that well is largely complete. We're just waiting for our vessel inspection and annual shutdown to conduct the final electrical tie-in before starting that well up. We also, as you...
Which has garnered quite a lot of interest, made a major discovery at Erregulla Deep, which is about sort of 5 km-6 km to the east of the West Erregulla Gas Field. That well is the deepest well ever drilled in onshore Australia, and it's yielded some absolutely profound results, and I'll take you through a bit more detail of that in the next few slides. The Western Australian Domestic Gas Policy update concluded this last quarter, and positively, the status quo was broken for Strike with the lifting of the export ban. That means that Strike will now be able to export 20% of its natural gas production via the existing LNG facilities in Western Australia, and we'll be able to do that until 2031.
That is, while a small, allowance for Strike, is actually a material outcome for revenue generation over that window. One of our other major projects, the West Erregulla Gas Project, that we share fifty-fifty with Hancock Energy, we received the first production license, at L25, and that project continues to move towards its final investment decision, which we are targeting for later this year. And moving on, to the actual financial results, as I said, total revenue generation for the quarter was AUD 18.3 million. Realized gas prices were somewhat lower than last quarter, down from AUD 7.80 to AUD 7.04, mainly due to foreign exchange as well as, lower, condensate pricing related to oil prices dropping during the quarter.
Expenditure for the quarter primarily was associated with the drilling in Booth-1, Erregulla Deep, the flow testing, and the final receipts for the drilling at Walyering-7, as well as the construction operations at Walyering to tie that Walyering-7 well in. We also started some of the minor surface rehabilitation at PEL 96 in South Australia, as we start to close out that portfolio on the eastern side of Australia. The balance sheet, however, remains strong. We drew down on some of our undrawn debt.
We have currently AUD 59 million of drawn debt from our AUD 76 million of facilities, and we are working through final financing documentation with Macquarie Bank to unlock that AUD 153 million financing package, which will support the final investment decisions at South Erregulla's Peaking Gas Power Station, which is due for next month, and the West Erregulla Gas Project with Hancock Energy. Just talking about how the portfolio is starting to change. You know, we, we now, as you can see on the map, we're now not only just putting the pipelines on this map, we're now putting also the transmission network. We do see Strike evolving as a material producer of gas-fired electricity over time.
Obviously, the first phase of that South Erregulla gas project, peaking gas project, 85 MW is a great size project using gas reciprocating engines. Fairly technologically robust project. Not a lot of, you know, new technology being used there, but that does allow us to work our way into that segment. So Strike is sort of starting to evolve as a great exposure of the West Australian energy transition. Not only are we supporting the industrial gas markets through domestic gas sales, but soon, we'll be generating electricity into that West Australian wholesale electricity market. And as we start to bring the larger West Erregulla volumes online, we're hoping to have some LNG exposure as well.
So, you know, three different diversified product streams, all with their own volatilities, and I think that that is forming as a really exciting, investment exposure to our shareholders over the coming decade. The, company itself, you know, as we made that, major discovery at Erregulla Deep, which we are in partnership with Hancock at, we currently, are sort of using about the 2U estimate as a fairly fair range for expectations as to how material that may be. As you can see on the chart in the bottom right-hand corner of this slide, Erregulla Deep, conversion of 2 U to 2 P 2 C will have... will be a meaningful increase in the company's total reserves and resources position. That well, performed exceptionally on flow test, and we have a little video here.
As you can see, the well, deepest well ever drilled. You know, we've got reservoir pressures in excess of 7,600 psi. The Kingia is so strong that, in fact, it was backing out the High Cliff gas discovery. Obviously, reservoir quality a little bit lower there, and therefore, the drawdown, which was only about 270 psi from shut-in wellhead pressure. Really, really intense flows that you can see. The absolute open flow of the well itself was measured between 400 million- 450 million scf . And the well itself stabilized very, very comfortably at 53 million scf , with an enormous flowing tubing head pressure of 5,515 psi on a small 46/64 choke.
To put that in perspective of other wells drilled in the basin, that is, you know, Lockyer Deep, which was a great flow test from Mineral Resources discovery, a little bit to the northwest of Erregulla Deep, that this well at Erregulla Deep is flowing at the same rate on a smaller choke with over a thousand psi of more flowing tubing head pressure. To put in perspective, just the quality of the result that we have generated here, given the amazing impact that Lockyer's discovery and that initial flow test had on Perth Basin prospectivity. But another part of Perth Basin prospectivity and you know very well-received by the other neighboring operators around us is that we've opened the play at depth.
We've proven that the porosity preservation mechanisms of the Kingia Sandstone are now working at depths of 5,000 m, you know, 4,800 m-4,900 m , true vertical depth subsea, which is a fantastic extension of depth of this play. We do think that the Erregulla Deep well will have an impact on the West Erregulla reserves position, and so right now, rather than looking to rush a reserve resource booking at Erregulla Deep, noting that the northern end of L25 and EP469 is covered in legacy 2D seismic, which we've had reprocessed, but is still not at the level of definition that we are comfortable. We're shooting the 3D seismic, the Natta 3D seismic, which is fully approved by the joint venture and by the regulator. That 3D will be shot over the harvest period.
We expect the crop to be lifted December, January, sort of period of time, and then we'll shoot that 3D seismic. That will give us a very high-resolution understanding of the Erregulla Deep structure and the impacts that we'll have on the northern end of the West Erregulla gas field. At that point in time, we will conduct an independent reserve and resource assessment of, and potentially what are the impacts at West Erregulla as well from Erregulla Deep, and we expect to convert some 2U to a 2P 2C, before the end of the financial year. So really exciting outcome there, and I think very material in the scheme of the overall reserve and resource position of Strike in the Perth Basin.
No one has found more conventional gas in Australia in the last five years than the team that we have here at Strike. Another great impact of Erregulla Deep is that it has opened the play out to the east. For those that have been following the story for quite some time, we've always hypothesized that the sedimentary input direction is coming from the northeast, with the sand coming from the northwest. So this is. We're actually looking to find a further extension of what the, what appears to be a sweet spot in the play. We're very fortunate that Strike has a commanding 100% owned position across EP503 and EP504. As you can see at the Arrino and Kadathinni structures out to the eastern side, we have recently shot four hundred and seventy-nine kilometers of brand-new 2D seismic.
We've got tie, 2D tie lines across to the West Erregulla field and Erregulla Deep, so we can map that seismic now across the Dampier Trough and back up to the first terrace on the eastern side. Positively, we're seeing great prospectivity, you know, from 4,000 meters and deeper, from the Triassic all the way through to the Permian. And we're really, you know, looking forward to continuing to interrogate that seismic and seeing what we can pull out of that to high grade those leads into prospects, and, you know, potentially look to conduct some exploration activities in the future.... On to one of our flagship projects, and something that I think is somewhat underestimated at its financial impact to the company, is the South Erregulla Peaking Gas Power Station.
I think it's surprised a lot of market participants at the speed and the quality that Strike has been able to convert and pick itself up off the floor from the South Erregulla appraisal results, and convert its domestic gas project to a peaking gas power project. We participated in the first round of the new capacity credit mechanisms, rules that the AEMO have rolled out. I think that this project is an enormously important project to the state of Western Australia, given the role that it will play at stabilizing the northern end of the South West Interconnected System. And I think that you can see the success that we've had through that regulatory process as just how important it is to the state. So we've received the 85 MW of capacity credits, a full network access quantity.
We've made leaps and bounds. We've signed our generator contract, which is our biggest long lead item and the most important contract. It's for AUD 47.5 million to Clarke Energy for our Jenbacher J624s, 4.5 MW engines, 20 of those coming out of Austria. They're fantastic pieces of kit. They have high efficiency, very fast start-up times, and are perfectly designed for peaking gas power. I think we can see from what we're starting to observe in the Western Australian electricity market that peaking gas power is going to provide an increasing important role in Western Australia as the government continues to firm on its commitment to exiting coal-fired power down at Collie.
I think it was the Collie Muja C unit that was not allocated capacity in this last capacity round, and I think that is evidence to demonstrate the state government's commitment to exiting coal-fired power here in WA, and increasing the rollout of renewables, batteries, which obviously requires a meaningful amount of peaking gas power to firm that. So we expect to see a greater amount of volatility moving into the market. I think the revenues that we're starting to forecast are closer towards the more upper end of our range. Certainly, the capacity prices that we received of AUD 216,000 per megawatt per annum is at the upper end of our forecast of a AUD 180,000-AUD 230,000.
This facility will now be eligible for capacity credits every year of its operation. We expect the West Australian government to operate a capacity market for over the next decade to come, you know, similar to the way that the U.K. is operating its electricity system. Which means that this is a very, very high creditworthy cash flow stream that is coming into the business, and forms a great foundation of financial architecture for us to be able to deliver capital back to shareholders in the form of buybacks, dividends, and continue to explore on a discrete basis to continue to replace our reserves. The peaking gas power markets, you know, we see it as a great place to deliver our gas into.
As I said, rising prices of power in Western Australia as that coal becomes a little bit more unreliable, and we continue to roll out our renewable penetration, but we do see it as a premium to the industrial gas markets, where that spark spread conversion of gas to electrons can yield a premium price for our product, and noting that as we move into the coming decades, the reserves replacement from our traditional sources of gas in Western Australia, up in the Carnarvon Basin, has not been occurring at the rates required, and we expect to see people like Strike and other Perth Basin participants be a very important part of West Australia's energy system going forward, and we have secured our access into the electricity market. We're a first mover in that.
I think we've got other, oil and gas companies in Australia that are indicating their interest in peaking gas power. We're not thinking about it, we are doing it, and I would like to congratulate my development team on being a strategic cycle ahead of the rest. So finally, just getting to where we are, for the year. You can see we've actually had a great year in terms of delivering against the catalysts that we had forecast after the South Erregulla appraisal results. We do have some drilling coming up in the next quarter.
We're starting to move into a lower capital spend of discretionary activities, while the Walyering East is the final exploration well of our gas acceleration strategy, and then we move into some pretty hard, 18-24 months of construction across the South Erregulla Peaking Gas Power Station, as well as West Erregulla. So while Walyering East, due to spud, around the end of the month, and looking to tie that well in, to really take advantage of some of the trading opportunities that will be made available to the company through Walyering being connected to the DBNGP, sometime in the first quarter of next year, through the Mondara crossing that we signed with APA, a bit earlier in this year. So that's, you know, end of a great quarter. Production, steady. Reliability of the facility, fantastic.
You know, can't control the foreign exchange, unfortunately, but it does look like Australian dollar has weakened a little bit recently, so, you know, that should come back to the fore. You know, looking forward to moving into that second and third leg of our gas acceleration strategy as we move into significant cash generation from 2027 onwards. And I think that, you know, shareholders should be aptly rewarded for their patience. Back to you, Emma.
Cool. Thanks, Stu. So we've got a few questions coming through, and one. The first one's from Richard Cook and Matthew Walker.
... Pointing to in February, in Chairman John Poynton's letter, that we take full responsibility for the setback and are committed to restoring value to the company and our shareholders, but the share price at that time was AUD 0.21, and today the share price is AUD 0.21. What measures are the board taking to address the share price, especially seeing as they thought it was index rebalancing was partly responsible via shorts, and that seems to have come and gone?
Sure. Yeah, and, you know, I as an inherent control person, I'd love to try and think that I could control the share price, but it's out, unfortunately, outside of my control. I think all we can keep doing, Matt and Richard, is that we keep delivering against our strategy. I mean, I can't see how Strike's share price continue, can continue to stay in the trading ranges that it has performed in, in the last sort of several months or so against the backdrop of the successes that we've been having in the field, particularly as we start to de-risk our assets, take them into construction, and ultimately into production. Just the weight of incoming cash flows will start to make Strike look incredibly undervalued against its peers.
I think even on a resource and reserve multiple, it's currently undervalued against its peers, and I expect institutional Australia to wake up, take notice of that, and to start to own the stock again, so you know, patience is required, and you know, we're looking forward to delivering some of those further milestones for the rest of the year.
Richard's got a follow on more on the quarterly numbers, which I might be able to answer. Detail the breakdown on the E&E costs and then the oil and gas asset costs. The E&E costs of AUD 9.3 million, that's related to the Erregulla Deep-1 drilling and the seismic, and the oil and gas assets includes Walyering, so that includes the Walyering drill in that AUD 14 million, and testing, and completion. Then another CapEx question from Matthew Walker. There appears to be doubt in the market about the balance sheet and the cash flow with all the planned activity, which is possibly holding down the share price in anticipation of a capital raise.
With all the ebbs and flows of the business and your acceleration plans, can you again reaffirm your ability to fund 100% of all planned activities without a cap raising?
Yeah, that's right. Thanks, Matt, and good question as well. I think that that's probably the last remaining question mark over Strike's ability to deliver these material projects and, and future cash flows, you know, is at what cost? As we start to move through the final investment decisions, you'll obviously see the planned expenditures that we intend to roll out. At this time, engaging with Macquarie, we do not intend to require an equity raise in order to support the financing of those projects. You know, we are going through the credit approval process at Macquarie, but at this point, at this juncture, we expect to see the facilities delivered by Macquarie Bank as being able to support the construction of those two projects.
Like I said, you know, moving the company into a lower profile of discretionary expenditure, so unfortunately, some of those really exciting moments of, you know, deep drilling and exploration and appraisal outcomes will need to take a back seat for a period of time whilst we move into construction, but fully financed through the facilities is the intention of the board and management at this time.
Cool. And, as we move towards FID at West Erregulla, and you've added in the report that you would look to tie in Booth-1 as a producer, there is a lot of gas for an 87- terajoule- a- day plant, so post Booth-1, is the JV considering upscaling the plant?
Yeah. So Erregulla Deep-1 has a really low impurity profile and almost pipeline spec quality to that gas. So we are currently engaging with the midstream operator, proposed operator, Australian Gas Infrastructure Group, at what would Erregulla Deep gas input into the plant do to the overall throughput of the plant? You know, I'm hoping to hear that, and we are yet to hear that the lower impurity gas blended with the West Erregulla gas means that we can potentially upsize the throughput, so to beyond the 87-90 TJs a day. But, you know, we're going through that technical work. We've only just really finished the flow testing and confirmed the gas specification.
So, you know, all in good measure, obviously, Erregulla Deep may warrant additional expansions of the West Erregulla facilities, but, you know, let's get the first train online first, and then really understand what an appraisal well at Erregulla Deep could yield, and whether that unlocks a second train at West Erregulla or through, you know, if it is such great quality, do we even need to go through the plant or could we bypass the plant? Just technical questions we're working through right now. Strike, very, very busy on meeting the initial developments. So let's just sort of, you know, all in good time, is the way I would describe it, but, you know, recognizing there is a closing window for LNG exports, which can facilitate through alternative financing mechanisms, accelerated expansion, and so something we're interrogating as well.
Cool. I guess follow on from that, when will we expect to have updated volumes for Erregulla Deep-1, and is a separate production license required over it?
... First but first, so Erregulla Deep-1, I think I just went through a little bit earlier to say that there's 2D seismic in the northern part of EP469 and L25. We see that seismic is good for understanding the approximate structural size, hence why we're still guiding the 2U being an appropriate resource for expectation setting. However, we don't want to book a number and then shoot the 3D, and then obviously the structure changes so materially that we need to debook some reserves.
We're going to shoot that 3D seismic in that January-February window, and then we will bring those volumes in, assess the shape and the size of the structure, be able to get our gross rock volume, and then conduct our reserves upgrade from there. That is all looking to be trying, to try and be concluded by the end of the financial year. When it comes to the second production license, you can see probably from one of the maps earlier in the pack, that the eastern side of the West Erregulla field sits inside of EP469. So we had already commenced the conversion of the remainder of EP469 to a second production license.
We have been notified of award of that second production license, but we're yet to be awarded the actual instrument, which, you know, hazard a guess would probably be called L26. But they're just working through that with the regulator at the moment. But that should allow us to capture Erregulla Deep in that eastern side of West Erregulla into a further secured tenure. Just on secured tenure, you know, no one's been more successful in the Perth Basin at getting environmental approvals and production licenses over discovered fields in the basin. So I think you can have a lot of confidence that we do want to put our assets under secured tenure, and that we have been very successful, and that is our intention going forward.
Another follow on. You say the eastern blocks are looking more prospective, post Erregulla Deep, which is great, but you also state that you're slowing down exploration work to focus on development and cash flow. What can you tell us about the timing of your plans to explore Ocean Hill and Arrino and Kadathinni to unlock the potential you see there and increase reserves? Is there still a planned drill for Ocean Hill in Q1 2025?
Great question, and yeah, those two statements can look a little bit contradictory. We are looking at other third-party sources of capital for potential exploration activities over the coming two years to three years, while we are, you know, going into that, drawing down on that debt, constructing those two projects, and then starting to service that and pay it back. With the unlocking of the LNG access, through the domestic gas policy update, that has really broadened the amount of interest in what's going on in the Perth Basin.
As we said to the parliamentary inquiry earlier in the year, the LNG markets in the world are a deeper, more liquid pool of buyers and sources of funding, and that is possibly one way that we are looking at trying to bring some exploration activities into that window without using our balance sheet, so to speak.
There's a question around export allowance. So the quarterly seems to refer as all production, and my understanding is that it's only for newly developed production capacity. So it is for anything pre-FID, so we wouldn't be able to export while nearing volumes, for example.
I mean, that's a point of discussion going on with DJTSI, Department of Jobs, Tourism, Science and Innovation, who control the domestic gas policy, is exactly how the mechanics work. I think when you saw the domestic gas policy update, this, you know, policy change was captured in about a three-line sentence. Obviously, not a lot of detail behind that. We're engaging with the regulator at the moment on exactly how the policy will roll out. You know, where is the true-up? Is it annualized? True-up or is it contemporaneous? Is it quarterly? And how do you measure that 20%?
Do note that while Walyering East sits in EP447, which is an exploration permit outside of the L23 production license, that while Walyering sits in, so we do see some very near-term opportunities where we're going to be able to, you know, start to bring other volumes into development, subject to their own individual FIDs.
We'll move on to Walyering just for a little bit. There's a few questions that we'll try and get through. What production rates step up in terajoules a day do you expect for Walyering with Walyering-7 and Walyering East?
So Walyering-7 surprised us a little bit, where a couple of the expected gas sands were very condensate heavy. I think the condensate gas ratios in a couple of those sands were in excess of sort of 85 barrels per million standard cubic foot. So the current plan at Walyering-7 is to bring it online and to understand exactly the stabilized liquid production rates. I mean, I think that the potential range of volumes of condensate that could be produced out of Walyering-7 are really, really broad on an unrisked basis. And so once we bring that well online, we're going to get a really good understanding of where the sweet spot is to liquid production into the facility, knowing that we've got about 1,300- 1,500 barrels of storage on the facility at the moment.
We want to make some other commitments to alternative commercialization pathways, which would, which may mean that we can produce condensates at higher rates. You know, the condensate rate is going to affect the gas rate, and the gas rate ultimately is the one that you're looking for. You know, we're not there yet, unfortunately, to tell you what we think it's gonna be. At the end of the first month of production is probably where we'll have a better idea. So something to come in the following quarterly, I would expect.
Yeah, and then a couple of questions coming in on the condensate. Whether there's... Sort of what is the value of sending the condensate to Port Bonython, and are there possibly other plans for the condensate at the moment?
... Yep. So the break even, it's hard to sort of say that there's a break even given that it's a by-product that we can't control its production. It sort of comes out with the gas. But the break even of the condensates going to Port Bonython, including trucking Port Bonython costs, and Walyering associated costs, you know, is around $50 a barrel U.S., and so you can see the oil price about $75 a barrel U.S. today. We want to increase that margin as we start to see an increase of that product coming into the facility. So we are looking at more localized opportunities where we can deliver more product sooner, and potentially expand that margin.
So, you know, it is something that the board has been very, very, focused on, is how do we get a greater amount of free cash flow generation from our liquids production? And I think that with Walyering-7 coming online, we may tip ourselves across that threshold of daily volume to be able to do something a bit more, commercially driven with that product, but something that we will assess, as I said, once we're doing that well online.
Cool. And we might just do one more. There's a question here on what STX's expected required CapEx spend range is for West Erregulla.
Yeah, that'll come out when we release the final investment decision numbers. You know, with the majority of the well fleet in the ground, it's not a huge number, as you can expect, given that all we have to put together is the flow lines, wellhead systems, and tie it all together. So, you know, we haven't disclosed that number at this point in time, so something that will come out in future disclosures, but it's not material in comparison to the amount of capital that we'll be spending at South Erregulla. So, you know, that's the key focus to ensure that we've got great cost control there, and we are ensuring that that project is executed as best in class as possible.
Cool. All right, we might leave it there. There's a few other sort of, very specific questions that I can answer on email. But thank you very much.
Thanks, everyone. Have a great day.
Have a good day.
See you next quarter.