Earlier this year a number of shareholders in Strike decided they were no longer happy with the pace of operations at the Klebb pilot, and there was a clean-out at the company, with new CEO Stuart Nicholls charged with giving the deep CSG development a bottom-up review.

 

After a long career with Shell, that included a period working as business advisor to former Shell Country Chair Anne Pickard when Shell and PetroChina teamed up to buy Arrow Energy, Nichols told Energy News he had a good grounding in what the southern Cooper Basin project needed to achieve lift-off.

 

"At Shell, I learnt what was required to make a CSG project work on scale, and all the technical and non-technical risks around that," he explained.

 

Shell's Bowen Basin project is still largely undeveloped, and the Anglo Dutch oiler later moved on to take over BG Group and the Queensland Curtis LNG plant rather than develop a standalone Arrow LNG, but Nichols still sees a fantastic project within Arrow that is "draped in irreconcilable non-technical risk".

 

He sees some similarities with his new focus in South Australia, but says there appear to be no major show-stoppers for the development in PEL 96, but he says technical execution had been compromised by a serious of decisions made over the past few years, and with a fresh perspective he said the new Strike realised it had been wrong to try to paper over the cracks and cut corners. 

 

"We have uninhibited access to a vast resource base, and we now have the freedom to bring out the best technical solution to the subsurface, rather than optimise around non-technical above surface issues," he said of his new approach.

 

Last week Nicholls announced the new strategy, developed after a comprehensive technical review.

 

He said there were six key pillars: a renewed "rocks first" subsurface focus; developing affordable and replicable well engineering; better understanding the unique depositional environment of the project; accelerating new technologies; developing new partnerships; and improving upstream competencies. 

 

Strike said there was no doubt there was a vast CSG resource in the Cooper Basin around its Klebb pilot, but it will require a significant effort to unlock one of the first deep CSG projects in Australia.

 

 

The review validated much of the subsurface work to date, defined the reservoir parameters that still require further de-risking and suggested alternative well designs to improve production and allow Strike to play the role as a major east coast gas producer that it has dreamt for the past four years.

 

Nicholls said the previous management had not developed a coherent model involving reservoir parameters or understood the ability of the reservoir to work under various commercial scenarios.

 

He said the company needed to better define gas content and porosity as a matter of urgency.

 

"The story probably wasn't as integrated as it probably needed to be and was based on a series of compounding assumptions that left the credibility of the declaration they were close to commerciality in question," he said.

 

"Since I have come on board there has been a major technical validation review that has actually generated and brought all of the input parameters into one place, and now we have actually got 95% of the story all working together and you can actually understand the lithology and the evolution of where the coal same from, and how it becomes gas charged.

 

"We also understand the conditions to put the subsurface into to generate major adsorption events."

 

He hopes that over the next 18 months the pilot can remove the remaining uncertainties and move into first commercial gas flows with the two-well Project Jaws, and the booking of the first 2P reserves.

 

The existing Klebb wells will be reclassified as an exploration project to help resolve some of the remaining subsurface questions.

 

Nicholls said at some point Klebb had evolved from an exploration undertaking to a production pilot, without any change in artificial lift or well parameters, so the facilities were not optimised to meet the outcomes required.

 

By taking it back to basics, Nicholls said there could be a significant amount of data that could lead to the development of a credible plant that could support the investment needed towards full field development within PEL 96.

 

The hydrodynamic, geomechanical and geophysical data from the Klebb wells will help inform the planning for a large, sustained gas flow in the Jaws wells, he said.

 

"For CSG at the depths that we are at, it is important to have good rates of gas and estimate ultimate recoveries, because we are not in Qld and 300m below the surface, we are 1600m down," he said.

 

The new plan has decoupled technical and commercial success to better understand what is needed for both.

 

"I think the previous management were trying to jump a couple of hurdles at the same time, and by having those blank input parameters, with those huge ranges of uncertainty around them, such as the downhole scaling issues, they couldn't explain what was happening because they had gone straight to the production outcome, rather than incrementally maturing the exploration program," he said.

 

But he shares the former management team's view that the project remains on the cusp of commerciality, he just disagrees with how long it will take to get there.

 

"We hope within two years we will be producing gas from the deepest coal seams that exist in Australia, and due to our unique depositional environment it is something that is difficult to replicate in Australia," he said.

 

Unlike Queensland CSG wells, were a decent flow rate is around the 1-2MMcfpd mark, Strike is hoping to see flow rates of up to 8.5MMcfpd from Jaws-2.

 

Nicholls said Strike was at the vanguard of Australian CSG, and while there would be a slippage of the former schedule - something not unexpected given the company is trying to develop a new play - he said the company would be able to ramp up very quickly.

 

"The previous plan, to go to a 10TJpd project, and then incrementally move up to 50TJpd once we had commercial success has changed, and once we have optimised wells producing to the way we have modelled, we can go from 50TJ to 200TJ, 300TJ or 400TJ," he said.

 

"Given that we have such a prolific resource base, it is remiss of us to do this in such small increments, based on very small decisions.

 

"You should get all of your ducks in a row and knock them all down at once."

 

He said the technical team needed to narrow the gas content per tonne to ensure it was in a range of acceptability, and the Jaws wells were being modelled on 5-6 cubic metres per tonne, and the aim is to better define well design and push the project into production.

 

If the gas content is 6.5cu.m per tonne the project is more robust over time, as over a full field development the sales gas volume is 2.5 times greater under than under the 5cu.m scenario.

 

While the company says it has funds to achieve technical success, it is investigating methods of raising capital to fund the Jaws funding, and it will lodge a proposal for further funding under the SA Plan for Accelerating Exploration which is due later in 2017.

 

The company has also revealed that a consequence of delays in proving the viability of the project, it has a dispute with potential gas buyer over a $7.5 million payment. Orica says the cash must be returned as it was a pre-payment for gas under the terminated agreement, while Strike argues it was an option fee. 

 

Strike shares last traded at 6.9 cents.