The Perth-based junior said the program offered potential early cash flow due to proximity to market and infrastructure and would allow Strike to participate in at least four wells over the next 12 months. The first of these wells would spud at next week.
The drilling program will also offer Strike participation in six to ten wells in its second year, 2006-2007.
“The agreement will provide Strike Oil with access to ongoing exploration and appraisal opportunities in Jackson, Wharton and Fort Bend counties immediately to the west of Houston,” the company said.
“This region has been one of the most prolific oil and gas producing regions of North America. These opportunities will generally be in the Yegua, Cook Mountain and Wilcox formations – all known gas productive horizons.”
The company said Cypress has many years experience successfully exploring in the region. It has a demonstrated track record applying advanced 3D seismic processing (AVO) technology similar to that used by Strike Oil to locate and discover the Casino Gasfield, offshore Victoria.
“Cypress is an experienced operator in this area which is an essential ingredient to being successful in the US,” Strike managing director Simon Ashton said.
“This strategic alliance is a unique opportunity for Strike Oil to accelerate our drilling program and gain an interest in an exciting region with favourable economics. Strike Oil will have access to superior quality projects underpinned by continuing high US energy prices and the prospect of near term cash flow.”
However, Strike said it still remained focused on its Carnarvon and Cooper Basin activities.
“The alliance with Cypress will assist the training and transfer of AVO technology to our Australian operations,” Ashton said.
The US drilling, coupled with Strike Oil’s Carnarvon Basin drilling, due to start in August 2005 and Cooper Basin drilling programmed for early 2006, should see the company participating in eight or more wells in the next 12 months.
Strike Oil will fund its access to the Texan program through a combination of cash and issuing of options to preserve cash for ongoing exploration.
It will pay US$385,000, in cash and issue 15 million unlisted options exercisable at 16 cents each and expiring on 23 June 2009. Additionally, ongoing drilling and associated exploration costs for the 2005/2006 year are likely to be around A$2.5 to $3 million, the company said.
Strike intends to take stakes of between 10% and 26.25% level initially, potentially increasing its equity share at a later date. It will earn its working interest in each exploration well by funding a third of the costs to earn a quarter interest. For example to earn a 10% interest Strike Oil will fund 13.33% of the dry hole costs.
These prospects offer resource potential of 5-20 billion cubic feet and initial production can be sold four to eight weeks from discovery, due to existing pipeline infrastructure and competitive gas markets.
The prospects are also located on 3D seismic anomalies with direct gas (AVO) indicators, increasing the chance of discovery, according to Strike.
Gas prices are currently about US$6-7 per thousand cubic feet (Australian gas prices are around US$1.50-2 per thousand cubic feet).
“The scale of these opportunities results in economics roughly equivalent to 30-100 billion cubic feet opportunities onshore Australia, due to the higher gas prices and the speed with which they can be developed and gas sold,” Strike said.
The company aims to obtain cash flow from this program in the 2005/2006 year.
The first two wells of this overall program – which Strike Oil did not participate in – have already been drilled and both were successful gas discoveries. Strike argued that this substantiated the value of the technological approach.
The first well that Strike Oil will be participating in, Jabber et al-1, will be on the 5-15 billion cubic feet Keepsake A prospect for a 10% interest.
This well is scheduled to spud by the end of June 2005. The second programmed well is likely to spud in the fourth quarter 2005.
