Proving up the potential of unconventional assets

FOLLOWING a review of its asset portfolio and operating strategy in late 2011, Strike Energy is firmly committed to advancing the exploration and development of its unconventional assets in South Australia and the US state of Texas.
The company’s key assets comprise: interests ranging from 35 per cent to 100 per cent in a 16,106 square kilometre area of South Australia’s Cooper Basin, that has extensive hydrocarbon-bearing shales, coals and sands with a prospective resource of 6.1 trillion cubic feet; and a 27.5 per cent interest (through the Eagle Landing joint venture) in more than 34,288 acres of the highly-prospective liquids-rich Eagle Ford Shale (also known as Eagle Ford Formation) in Texas.
It also has a 40 per cent interest (through the Eaglewood JV) in a conventional asset, known as the US Conventional project, covering 4800 acres in the Louise gas-condensate field in Texas.
In January, Strike gave its shareholders the opportunity to participate in an entitlement offer and a share top-up facility to raise about $3.1 million. The entitlement offer was well supported, with about 70 per cent of entitlements exercised, and
the share top-up facility was largely over-subscribed.
In March, Strike announced a $20 million share placement to sophisticated and institutional investors. The first tranche of the placement (about $7.8 million) was within Strike’s 15 per cent placement capacity permitted by corporate law and has been completed.
The second tranche, subject to shareholder approvals, totals about $12.2 million.
The two rounds of fundraising put Strike in a strong position to advance its key unconventional assets through production drilling in the Eagle Ford Shale and follow-on exploration drilling within the Cooper Basin.
Cooper Basin
Strike’s current exploration program aims to further demonstrate the potential of the Permian section of its Southern Cooper Basin permits – PEL 94 (Beach Energy 50 per cent, Strike Energy 35 per cent and Senex Energy 15 per cent), PEL 95 (Strike 50 per cent and Beach 50 per cent) and PEL 96 (Strike 66.67 per cent and Energy World Corporation 33.33) – to host a major unconventional hydrocarbon resource.
During the March quarter, Strike participated in its first Cooper Basin unconventional evaluation well, Marsden 1 in PEL 95. The well encountered more than 800m of Permian sediments, including thick sections of the target areas: the Toolachee Formation; the Roseneath Shale, Epsilon Formation and Murteree Shale (together known as REM); and the Patchawarra Formation.
Marsden 1 recorded elevated gas shows in the target formations and the presence of heavy hydrocarbons, highlighting the unconventional hydrocarbon resource potential of the Southern Cooper Basin.
On April 25, the Davenport 1 unconventional evaluation well was spudded in PEL 94.
“Davenport 1 will be the first unconventional well drilled in PEL 94 and will be important in demonstrating the extension of thick Permian coal and shale formations across the Southern Cooper Basin,” Strike managing director David Wrench said in a statement.
Davenport 1 reached a total depth of 2102m, and wireline logging and sidewall coring was completed.
In May, a sidetrack well was drilled to cut cores in the Patchawarra Formation. Preliminary data indicated that Davenport 1 penetrated thick coals and shales through the Toolachee, REM and Patchawarra Formations.
More than 110m of net coal was encountered, including one seam with more than 45m of net coal and two further seams with net coal thickness of greater than 20m. Elevated gas shows were recorded across the target formations.
“We are particularly excited by the preliminary results from Davenport 1. We have encountered one of the thickest coal seams ever recorded in the Cooper Basin and the results are well in excess of our pre-drill expectations,” Mr Wrench said.
Eagle Ford Shale
The Eagle Landing JV has built a sizeable lease position in the Eagle Ford Shale within the Fayette and Lavaca counties of Texas.
The Eagle Ford Shale has emerged as one of the world’s premier unconventional plays due to high condensate and natural gas liquid production ratios.
The Eagle Landing JV is working to a sequential development plan to demonstrate the extent and productivity of the Eagle Ford Shale and the Lower Austin Chalk Formation within its permit areas. The first stage comprises leasing and evaluation; the second stage, early production; and the third stage, production drilling.
During the March quarter, the JV increased its leasehold acreage by 16 per cent with the acquisition of 1300 acres.
The new leases consolidate the JV’s existing acreage, creating a more contiguous lease area and providing greater ability to optimise well locations.
Also during the quarter, the JV advanced plans for its first horizontal production well, expected to spud mid-year.
In addition, Strike committed to a 3D seismic survey covering the JV’s entire lease area.
In early June, the initial Eagle Ford Shale production test well – Bigham 1H – was spudded.
“The Bigham 1H production test is an important step in proving up the value of our targeted shale investment,” Mr Wrench said.
“We are excited about commencing this early production phase of the project which, if successful, has the potential to significantly re-rate the company over the next six months,” he said.
On July 2, Strike reported that Bigham 1H had reached a depth of 1500m and that it was drilling ahead to a total vertical depth of 3700m prior to drilling a 1500m horizontal section.
Production
The Duncan 1 well in the Louise gas-condensate field has produced about 4 million cubic feet of gas and 100bbl of condensate per day without decline since production began in April 2010.
Strike’s production for the March quarter was 145.9Mmcf of gas and 3763bbl of oil, 28,080 barrels of oil equivalent and 1.68Mmcf of gas equivalent. Strike’s revenue from the Eaglewood JV production for the quarter was $876,000 for both oil and gas.
Strike also had a share in production from its interest in the MB Clearfork project in the Permian Basin of West Texas, which it acquired in November 2011.
For the March quarter, production was 1.812Mmcf of gas, 1476bbl of oil, 1778boe and 10.668Mmcfe of gas. Strike’s revenue from production at MB Clearfork was $208,000.

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