Orica to fund gas junior's project in move to shore up energy supplies
Chemical and explosive manufacturer Orica has agreed to fund development of an onshore gas project being spruiked by ASX junior Strike Energy, in a bid to eventually secure a cheap source of gas.
The deal means Orica will make pre-payments of up $52.5 million, enabling Strike to appraise and develop its gas deposit in South Australia's Cooper Basin. Strike is unlikely to produce any gas before 2016 but, if successful, the deal could have it deliver as much as 150 petajoules of gas to Orica.
In the period beyond 2015, gas prices are expected to almost double to about $9 per gigajoule on Australia's east coast, tempting big energy users such as Orica to try and lock in cheaper sources.
Strike managing director David Wrench declined to name the exact price Orica would be paying for its gas under the deal but he indicated Orica's status as Strike's foundation customer would come with benefits.
"There is a lot of commentary about the forward price being $6 to $9," he said. "I think it's fair to say that this [deal's] pricing is at the lower end of that range and possibly below it."
Orica chief executive Ian Smith said the deal would help reduce the cost of manufacturing in Australia.
"This agreement has the potential to provide a future new source of gas supply to our Australian east coast manufacturing plants at an affordable price," he said.
Shares in Orica closed 46¢ lower at $21, while Strike closed 15 per cent higher at 11.5¢.
Frequently Asked Questions about this Article…
Orica has agreed to fund development of an onshore gas project being promoted by ASX junior Strike Energy. The deal involves Orica making pre-payments to help Strike appraise and develop its gas deposit in South Australia's Cooper Basin, with the aim of securing a cheaper, long‑term source of gas for Orica's operations.
Under the agreement Orica will make pre-payments of up to $52.5 million to enable Strike Energy to appraise and develop its Cooper Basin gas deposit.
Strike's gas deposit is in the Cooper Basin in South Australia. The Cooper Basin is the onshore location Strike plans to appraise and develop, and securing gas from there could give Orica a local, potentially cheaper supply for its east coast manufacturing plants.
Strike is unlikely to produce any gas before 2016. If the appraisal and development are successful, the project could supply gas to Orica beyond that timeframe.
If successful, the deal could see the project deliver as much as 150 petajoules of gas to Orica.
Strike's managing director declined to name the exact price, but indicated Orica's status as a foundation customer means the pricing is at the lower end of the commonly quoted forward range of $6 to $9 per gigajoule and possibly below that. Market commentary in the article also notes east coast gas prices are expected to approach about $9 per gigajoule beyond 2015.
Orica's CEO said the agreement has the potential to provide a new, affordable source of gas supply to the company's Australian east coast manufacturing plants, which would help reduce the cost of manufacturing in Australia.
On the day of the report Orica shares closed 46 cents lower at $21, while Strike Energy shares closed 15% higher at 11.5 cents, reflecting market reaction to the funding agreement.
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