Warrego, Strike gas results are real, and they’re spectacular
Special Report: Warrego Energy and Strike Energy have hit a gross gas column even thicker than the game-changing Waitsia field in WA.
Warrego Energy (ASX:WGO) told its investors that the West Erregulla-2 joint venture has hit 41m of net pay in a gross column of 97m from the Kingia Sandstone — raising hopes that this well could exceed Waitsia-4.
What’s more, porosity came in at up to a whopping 19 per cent — meaning that it shouldn’t take too much to crack the formation open.
For those of you playing at home, Waitsia-4, drilled by AWE, flowed at 90 million cubic feet per day during flow testing — before the company was sold to Japanese giant Mitsui for $600 million.
Hitting the first of two primary targets at the well, Warrego CEO Dennis Donald said the sheer scale of the logs meant that this well could become a game-changer for the company.
“This exciting discovery has exceeded our pre-drill expectations for the Kingia and substantially upgraded our view of the West Erregulla gas fields as a whole,” he told investors.
“The net pay of 41m is significantly thicker than analogues in the Waitsia field and underlines the potential of West Erregulla and EP469 to become an important future source of gas production in Western Australia.
“The scale is material and has the potential to convert the fields from exploration to production assets in short order.”
That will be music to the ears of Warrego shareholders, with the company proving a cheaper entry into West Erregulla upside than joint venture partner Strike Energy.
While the former has a market cap of just $172.75m, the latter has a cap of $337.68m.
Strike trades at a $165m premium to Warrego, yet they are equal partners in the project.
While Strike has other assets, specifically the Jaws coal seam methane project in Queensland, most of the value in the company has been ascribed to its West Erregulla joint venture.
With Warrego a 50 per cent partner in West Erregulla, there is plenty of potential upside for a re-rating in the company’s share price as success continues.
While the results will certainly drive investor excitement in the two companies, it’s important to note that they have not flow-tested the formation yet.
This means shareholders will have even more data to chew on as the joint venture moves towards testing.
The well will now drill ahead to the High Cliff sandstones (which in itself has shown promising anomalies on pre-drill analysis).
The well will be drilled down to 5200m, and then be logged, cored and cased, before the running of a production completion test and a flow test.
That flow test will tap several formations, including the Wagina and possibly the High Cliff.
Any gas produced from the tests can be easily fed into one of the two major pipelines that run past the block — the Dampier-Bunbury and the Parmelia.