Strike Energy shares plunge on delays to West Erregulla gas
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The news: Shares in Strike Energy plunged in morning trading on the ASX, after the gas explorer announced further delays to production at its West Erregulla gas field, coupled with a ratings downgrade from Macquarie analysts.
The numbers: Strike shares were trading 12.5% lower at $0.25 by 11:55am AEST, making it the worst performing of the ASX 200 companies.
Macquarie analysts downgraded the Perth-based energy company to 'underperform' but retained their 12-month target price of $0.22.
The analysts noted that Strike shares lifted more than 20% last week, or 4.5 cents per share.
However, they said they were "surprised" at the market's positive response to a larger-than-expected 65% downgrade at its South Erregulla reserve, suggesting there is "excessive optimism" around the timeline and value of the power project.
Meanwhile, Strike's West Erregulla gas field has faced "persistent schedule delays", having originally been slated for production in 2020. The analysts said they are sceptical that the development — a 50/50 joint venture of Strike and Gina Rinehart's Hancock Prospecting — will meet its final investment decision date of Q3 2024, with "a lack of public updates from Hancock".
The context: Strike flagged delays in receiving environmental approvals, and in turn delays to a final investment decision, at West Erregulla.
The company said the delays meant it would increase the gas price under its supply agreement with Wesfarmers-owned CSBP at West Erregulla, to be "more closely aligned to current WA market prices for long term gas supply".
Meanwhile, Macquarie analysts said they saw "more attractive opportunities elsewhere", and noted that both Karoon Energy and Cooper Energy offered stronger free cash flow, while Cooper Energy and Carnarvon Energy hold more probable merger and acquisition potential.
The sources: Macquarie research, ASX announcement
