Special Report: Oil and gas junior Warrego Energy (ASX: WGO) has followed joint venture partner Strike Energy (ASX: STX) in pulling the trigger on a capital raising as both companies prepare for the imminent spudding of the highly anticipated West Erregulla -2 well in the Perth Basin.

With drilling set to commence at West Erregulla -2 tomorrow, Warrego announced this morning that it had raised $6.1 million through a share placement to institutional, sophisticated and professional investors priced at $0.095 a share.

The company said it would also undertake a share purchase plan on the same terms to raise up to an additional $1 million from existing shareholders.

Warrego Managing Director and Group Chief Executive Dennis Donald said the company was delighted with the level of support for the raising, which resulted in demand in excess of capacity.

“The additional funding will allow us to commence the next steps required post the well to scope out any discovered resource,” he said.

Warrego’s share of costs on West Erregulla -2 are minimised given the farm-in deal executed with Strike in March last year.

Under that deal, Strike agreed to carry Warrego for up to $11 million in expenditure in exchange for a 50% interest in block EP469, which neighbours the Waitsia gas field discovered by AWE Limited in 2014, in the Perth Basin.

Strike also assumed operatorship of the joint venture.

West Erregulla -2 will be the first well in EP469 drilled by the partners.

There are high hopes they can replicate the success of Waitsia given the similarities exhibited by the prospect.

Notably, the formation that hosts Waitsia’s 836 PJ 2P reserves, the Kingia-High Cliff sand sequence, extends into EP469.

Strike has estimated the Kingia-High Cliff sand sequence in West Erregulla -2 could have a gross prospective resource of 916 billion cubic feet of gas (P50 or “mid-range” estimate).

Pre-sales agreement shows confidence

Expectations that the well will deliver were evident in a Gas Sales Option Agreement that Strike announced with Wesfarmers chemicals and fertiliser subsidiary CSBP on Wednesday.

For an upfront fee of $5 million, Strike has granted CSBP an option over the supply of 80 to 100 PJs of its share of gas from West Erregulla -2.

If the well is unsuccessful, Strike will be required to refund 50% of the fee in cash or shares.

“Strike’s ability to secure a major Western Australian industrial gas user as a potential offtake customer, who is willing to support Strike in the discovery of the field, is further evidence of the high confidence and potential quality of the West Erregulla gas target,” managing director Stuart Nicholls said.

Strike followed this by announcing on Thursday that it had raised an additional $12 million through a share placement, ensuring that its share of the West Erregulla -2 costs is covered.

Both Warrego and Strike saw strong demand for their respective placements, ultimately accepting subscriptions for more than they originally set out to raise.

The Waitsia -4 well flowed 90 mmscf/d, which is the highest flowing onshore gas well in Australia and was largely responsible for AWE being acquired by Mitsui for more than $600 million in 2018.

Should West Erregulla -2 prove successful, it should also have sufficient gas resources to support a stand-alone development.

The nearby Dampier-Bunbury and Parmelia pipelines represent an obvious route to market for any commercial gas volumes.


This story was developed in collaboration with Warrego Energy, a Stockhead advertiser at the time of publishing.
This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.