Strike Energy share price plunges due to West Erregulla gas delivery delays — Capital Brief

The news: Strike Energy shares plunged in morning trade on the ASX after the gas exploration company announced further production delays at its West Erregulla gas field and a credit rating downgrade by analysts at Macquarie.

The numbers: By 11:55am AEST, Strike shares were trading 12.5% ​​lower at $0.25, making them the worst performing ASX 200 company.

Analysts at Macquarie downgraded the Perth-based energy company to “underperform” but maintained their 12-month price target of $0.22.

Analysts noted that Strike shares rose more than 20%, or 4.5 cents per share, last week.

However, they said they were “surprised” by the market’s positive reaction to the South Erregulla Reserve’s sharper-than-expected 65 percent downgrade, suggesting there was “excessive optimism” about the energy project’s timing and value.

Meanwhile, Strike’s West Erregulla gas field is facing “ongoing schedule delays,” despite production originally being planned for 2020. Analysts expressed skepticism that the project – a 50/50 joint venture between Strike and Gina Rinehart’s Hancock Prospecting – will meet its final investment decision date in the third quarter of 2024, given “no public updates from Hancock.”

The context: The strike was due to delays in the granting of environmental permits and thus in the final investment decision in West Erregulla.

The company said the delays meant it would have to increase the price of gas under its supply contract with Wesfarmers-owned CSBP in West Erregulla to “better align it with current market prices in Western Australia for long-term gas supplies”.

Meanwhile, analysts at Macquarie said they saw “more attractive opportunities elsewhere”, noting that both Karoon Energy and Cooper Energy offered stronger free cash flow, while Cooper Energy and Carnarvon Energy had more merger and acquisition potential.