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 will see Orica 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 see it deliver as much as 150 petajoules of gas to Orica.
The period beyond 2015 is expected to see gas prices almost double to about $9 per gigajoule on Australia's east coast, tempting big energy users like Orica to try to 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 that Orica's status as Strike's foundation customer would come with benefits.
Orica boss Ian Smith said: "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."
Shares in Orica closed 46¢ lower at $21, while Strike closed 15 per cent higher at 11.5¢.