Orica to fund onshore gas project development in deal with Strike
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¢.
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The deal has Orica agreeing to fund development of an onshore gas project being developed by ASX junior Strike Energy. Orica will make pre-payments to help Strike appraise and develop its South Australian Cooper Basin gas deposit, positioning Orica as a foundation customer for future supply.
Orica will make pre-payments of up to $52.5 million. Those funds are intended to enable Strike to appraise and develop the Cooper Basin gas deposit so the project can move toward production.
The project is in the Cooper Basin in South Australia and is being developed by ASX-listed junior Strike Energy, with Orica providing development funding under the agreement.
Strike is unlikely to produce any gas before 2016, so any supply to Orica would be expected after that timeline if the project is successful.
If successful, the deal could see Strike deliver as much as 150 petajoules of gas to Orica.
Orica says the agreement could provide a new, affordable source of gas supply for its east coast manufacturing plants. With east coast gas prices expected to almost double beyond 2015 to about $9 per gigajoule, big energy users like Orica are looking to lock in cheaper sources.
Strike’s managing director declined to name the exact price Orica would pay. He did indicate that Orica’s role as Strike’s foundation customer would come with benefits, but the specific gas price was not disclosed.
On the day of the announcement Orica shares closed 46 cents lower at $21, while Strike shares closed about 15% higher at 11.5 cents.
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