Strike Oil stays on the offensive

The aggressive exploration program of recently listed Strike Oil is on track with the company set to drill three wells in the Carnarvon basin this month.

Further, thanks to a high oil price and positive market sentiment, the company has enjoyed a solid performance, doubling its market capitalisation in its first few months since listing.

At a share price of 35 cents, and with 142.4 million shares, Strike’s market capitalisation has risen to around $50 million from about $29 million at listing.

The share price of the West Perth-based firm reached a high of 43 cents in late September before reaching 35 cents this week when WA Business News went to press.

At listing in August, the shares entered the market at a 4-cent premium to its issue price of 20 cents.

Strike raised $12 million in an initial public offering and, after selling out of the Casino gas discovery in the Otway Basin in Victoria (sold to AWE for $23.5 million), was left with $5.5 million in cash after the bulk of the funds from the sale formed a capital return to shareholders.

The company has acreage in the Carnarvon and Cooper basins and a drilling program for nine wells over the next 24 months.

The first three of those wells is in the 90 per cent owned Altostratus prospect.

Strike recently farmed out 10 per cent of the Altostratus 1 well to Bow Energy, a wholly owned subsidiary of Arrow Energy.

In a statement to the ASX the company said the farm-out agreement would generate a cost saving of about $500,000, with Strike retaining a 90 per cent interest.

Analyst Peter Strachan, publisher of the Stock Analysis report, said the issue for Strike was that almost all of its exploration upside was attributable to Altostratus, “making the company somewhat of a one-shot wonder, given that 50 million barrel discovery would be worth about $2 per share”.

With about $16 million in the bank, the company has a strong cash position, good prospects and high equity in the Altostratus prospect.

“It’s unusual for a small company to have such high equity,” Strike managing director Simon Ashton said.

Strike is one of a growing number of smaller oil and gas companies exploring areas that have been ignored by the majors.

While a strong oil price has provided a “happy coincidence” for the company, Mr Ashton said the decision to list was influenced by a number of other contributing factors.

“The company was evolving and it was a key part of our strategy to list because we been around for seven years,” he said.

“We needed increased liquidity for share holders.”

Mr Ashton said it was a good time for smaller oil and gas explorers.

“The capital markets are strong and the smaller companies can raise money and can drill more holes which means more discoveries,” he said.