Ann: Strike & Orica Sign Binding Gas Supply Term , page-41

re: Ann: Strike & Orica Sign Binding Gas Supp... I was suprised at the muted reaction, maybe this article offers some explanation?

Strike strikes it lucky with Orica deal on risk sharing

by:Criterion
From:The Australian
July 16, 201312:20PM

AT a time when oil and gas explorers are screaming for funds to prod and probe their speculative dirt, Strike Energy (STX, 11.5c) has done well to attract the deep-pocketed support of the gas-dependent explosives and fertiliser giant Orica.

Unloved Strike shares duly saluted 15 per cent on the news of the “innovative risk sharing arrangement”, but like most of these deals a fat wallet doesn't amount to an unconditional flow of funds to the Cooper Basin junior.

In essence, Strike gets backing to develop the tenement without diluting is equity and Orica gets cheap-as-chips gas.

The deal involves Orica committing $2.5 million to fund a three-well appraisal program in permit PEL96, held by operator Strike (66.67 per cent) and Energy World Corp (33.33 per cent).

If Orica likes what it sees, it then “elects” to make up to $52.5m of gas pre-payments, should Strike strike “appraisal and development milestones''.

Overall, Orica commits to buy up to 150 petajoules of gas over 20 years, at a knock-down 35c a gigajoule.

This compares with the production cost around $3GJ and the current eastern seaboard domestic rate of $6-9 GJ.

While 150PJ (around 140 billion cubic feet) is rather a lot of the methane-rich substance, it's only a fraction of the gas Strike hopes to prove up across PEL96 – between 2.7 and 6.3 trillion cubic feet.

There's nothing to stop Strike from doing offtake or farm-in deals with other parties.

Criterion had Strike as a spec buy at 20.5c in April last year, when unconventional Cooper shale was hotter than a One Direction dance party. (Like Kevin Rudd, we like to pretend we're in the groove of the younger set).

Regrettably, the lofty multiples for Cooper acreage paid by the likes of Beach Petroleum and Drillsearch did little to enhance Strike's valuation.

Nor did its ongoing presence on the Eagle Ford in the US, the spiritual home of unconventional hydrocarbons.

Our Strike call is under review.

As for Orica (ORI, $20.95), the deal is merely part-insurance against a tightening domestic market and presumably it's eyeing similar arrangements with other juniors.

We have Orica as a long-term buy.

We haven't visited the much bigger Energy World ((EWC, 47.5c) recently, but like an inebriated passenger steered home by the designated driver it's along for a nice ride.