Strike Energy Ltd

ASX:STX

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Emma Alexander, executive]

Good morning, everyone. Welcome to our quarterly activities report for Q4 for FY '24. We'll run this the same as we have been doing recently. I'll hand over to Stu. We'll have a Q&A session at the end. If you could use the Q&A box to put your questions in and I'll ask Stu at the end of the session. So thanks.

Over to you, Stu.

[Stuart Nicholls, executive]

Thanks, Emma. Good morning, everybody, and welcome to Strike's fourth quarter FY '24 quarterly report and financials. It's been another busy and productive quarter for the company, which has been highlighted not only by record production and sales from Walyering, where we generated around $20 million in both gas and condensate sales, averaging around 25 terajoules a day and around 180 barrels a day of condensate.

The quarter was also highlighted by the discovery at Walyering-7 where we had 23 meters of net gas pay, where we've also been testing that well into the Walyering facility, where all of the test condensate and gas has been sold into Strike's existing marketing arrangements.

Realized pricing for the quarter has been up. We're close to $8, around $7.82. We completed and started receiving the Ocean Hill 3D seismic, which is showing us some very positive indications, which I'll take you through in a little bit more detail later. And then, lastly, we announced our $153 million development financing package from Macquarie Bank Limited, which we are moving towards financial close off in this quarter.

The company's financials, the company continues to be in good health with, as I said, quarterly revenue up 13% to $20 million for the quarter with realized pricings being supported by increased production as well. The company spent a decent amount of money in this quarter on exploration activities. It was obviously the completion of the preparations for Erregulla Deep-1. For Booth-1, the Ocean Hill and the Kadathinni seismic campaigns as well as the preparation for future testing activities at Walyering-7.

The company remains in -- the balance sheet is in good nick, as we have liquidity of around $86 million for the quarter, $39 million of cash flow there and a cash burn when you net off the revenues and the free cash flow generated from Walyering of around $6 million. And we continue with our $47 million of undrawn debt. That's been boosted by the fact that we haven't had to pay down our remaining $16.6 million of Macquarie debt as we renegotiate the refinancing of that as part of our financial close in the $153 million Macquarie financing package.

In all, I think the company has had a great quarter. I know that some people might say that that's not necessarily reflective of the market price today of our securities. However, we are very proud of the things that we've achieved. And we're very, very busy operationally as a small business. Some of those things that we've done from a production and development, key series of assets as part of our gas acceleration strategy, highlighting the Walyering-7 well, we took on quite a technically challenging well, which we drilled from the Walyering facility out with about a 1,600 meter step out into the Walyering-7 compartment.

We discovered 23 meters of net gas pay in the A-Sands and D-Sands there. We've had those sands individually on tests. We've been doing pressure build-ups, taking samples as well as doing flow tests. And pleasingly, we're seeing gas with a higher heating value than what we have seen throughout the rest of the Walyering field. So you get a higher energy conversion from million standard cubic feet to terajoules per day as well as a much higher condensate gas ratio.

Those testing -- that testing will conclude in the coming weeks. And we'll put out the final test results from Walyering-7, which should support and continue to boost additional reserves as well as production capacity at Walyering, where we do have some latent capacity in the facility.

Moving to our 2 key development assets, both at South Erregulla and West Erregulla, really meaningful progress at both of those. Unfortunately, at the start of the year when we saw the South Erregulla appraisal results, not delivering the outcomes that we were looking for, which has been a pretty big shock to the forward strategy. The development team had been working through power economics quite closely and looking at the changing rules in the AEMO for the wholesale electricity market here in Western Australia.

And given that asset sits inside of the Southwest interconnected system, where we have up to 5 gigawatts of electricity demand and adjacent transmission lines, the best way to monetize the 82 terajoules of recertified 2P plus 2C that we now have at South Erregulla is to maximize that through the conversion of that gas into electrons and pushing those electrons into the Southwest interconnected system. That can generate a significant uplift from general gas revenues, where we see pricing sort of between that, $8 to $10 range where we can generate a look through that is some 2x to 3x higher on a per gigajoule basis.

The project is also supported by the change in the AEMO rules, where the state government now has a capacity credit mechanism. And those capacity credits underwrite a very strong amount of economics for the project, where when you take into account ESS or ancillary services that the peaking power station can provide as well as energy revenues modeling at an average of $140 a megawatt hour with around 4 terajoules a day of gas production and the capacity credits between $180,000 and $230,000 per megawatt hour.

We can see annualized revenues being generated from the South Erregulla peaking power station of between $40 million to $50 million per annum. So a really nice development plan there for South Erregulla and hats off to the development team here at Strike. They managed to maneuver the Strike subsurface results as quickly as possible to put ourselves in the best position with that submission occurring in June.

We're expecting to hear from AEMO in August, whether the project has been awarded capacity. And if -- should that capacity be awarded in August, we'll find out the final price of that in October as well as the network access quantity. And should that all go the way that we would like it to, that will lead us into a final investment decision at South Erregulla, where we will look to construct the 85-megawatt peaking gas power station and have that online in calendar year '26, towards the latter part of the year. So really exciting in South Erregulla.

We've been able to use a lot of the existing approvals. The EPA approvals and the appeals that were convened over the last quarter and that have been cured. And we've been able to retain a large amount of the South Erregulla value by this innovative fully integrated gas to electron development plan that we had put forward.

At West Erregulla, the large domestic gas project that we have and we share 50% with Hancock. That project received its environmental approval during the quarter. That is a huge boon for that project. We've been working those environmental approvals for about 3 years now. Similarly, Australian Gas Infrastructure Group, who will provide the build-own-and-operate gas processing plant that Strike will toll its gas through, also received its environmental approvals and ministerial statements. The EPBC approval, which is delegated to the EPA here in Western Australia, is moving through that final sign-off. And we expect to receive that in the coming quarter. And that will lead us towards closing out the field development plan with Hancock as well as completing the third-party midstream access agreements for the Australian Gas Infrastructure Group, 87 to 90 terajoules a day gas plant. And that will lead into a final investment decision at the large West Erregulla gas field.

The quarter was also marked by the expiry of the CSBP fixed gas price contract that was struck as a result of the 2018-2019 gas sales option agreement between Wesfarmers and Strike. That contract has expired and that will move back to its gas sales option agreement. And Strike is working with Wesfarmers to move that back towards a gas sales agreement to support the final investment decision in the coming quarters.

So West Erregulla and South Erregulla on plan, very large and key parts to our gas acceleration strategy, both on track to achieve our final investment decision and sanctioning and that is underpinned and supported by the $153 million Macquarie financing facility that the company announced during the quarter. We're well supported by Macquarie Bank and the company, along with its free cash flow generation from Walyering as our exploration and appraisal activities start to wind down over the coming 1 to 2 years. That we will see an ability to fund those projects all the way through to the cash generation where, come the financial year '27, this company will be generating a significant and meaningful amount of cash and free cash flow as a result of the low-cost nature of our developments and the high margins that our conventional onshore gas assets will generate into the West Australian electricity and gas markets.

Finally, we also did a minimum holding buyback of the unmarketable parcels at Strike. We reduced the number of shareholders by about 8%. That obviously makes things a little bit easier for the company to manage the administration of its share registry. And like I said, we finished the quarter with around $86 million of liquidity, which is broken up a bit less than 50% cash and $47 million of undrawn debt from the original debt facilities with Macquarie Bank with $16 million of drawn debt, which will be refinanced into that $153 million financing package as I just went through.

It was a pretty big quarter for a broader portfolio for some of the assets that don't get a lot of the attention. Particularly, we're about to spud the Booth-1 well in joint venture with Triangle Energy, the operator, New Zealand Oil & Gas. The rig has been received on the contract and has been mobilized to the Booth-1 well. And we expect that well to spud in the near future. It should be a pretty quick well with a depth less than 3,000 meters. And that is prospective for both oil and gas in both the Dongara/Wagina as well as the Kingia/High Cliff Permian sequences.

Erregulla Deep-1 in 50-50 partnership with Hancock, this is a large structure that is adjacent to the existing 2P reserves of West Erregulla just to the eastern side of the field there. It is on trend with the Lockyer and North Erregulla discoveries from Mineral Resources. This is a high-impact well that could add a material amount of new reserves to West Erregulla as we approach that final investment decision. And does give the company a really good amount of upside to look forward to as we start to see the gas markets continue to evolve and pricing dynamics continue to stay elevated.

We reloaded the funnel with new opportunities throughout the quarter at both our large LNG scale targets out to the eastern side of the Dandaragan Trough. This is really Frontier stuff, which Strike is well known for. The Arrino and Kadathinni 2D seismic, where we completed almost 500 line kilometers of 2D over an area that is dramatically underexplored, that is across what we call the Tathra Terrace. The Tathra Terrace is a structural extension of the Lockyer and North Erregulla and Erregulla Deep sort of structural setting.

Early signs are positive for good imaging down at Permian level as well as we're seeing some of the large and major faults down that structural setting. We'll have more to come as we start to receive processed versions of that 2D seismic in the coming quarter.

And then on to Ocean Hill which I'll go through in a little bit more detail. The Ocean Hill 3D seismic which was shot over the existing 306 petajoules of 2C resource, which was certified by RISC in November 2022. That 3D seismic has come in and is looking very positive. We've only got the fast-track seismic cubes at this time. But you can see a substantial uplift in the data quality from the Legacy 2D to the new 3D.

Importantly, using our proprietary understanding of the reservoir laydown and hydrocarbon migration pathways that we've identified from Walyering, we're able to apply that understanding to Ocean Hill. And you can see the Ocean Hill-1 well in the intra-Cattamarra, there is a reduction in reflectivity as that will pass through that mid-Cattamarra area, where reservoir quality was quite likely the predominant reason why the Ocean Hill-1 well only flowed minor amounts of gas to surface.

So we know we've got a working trap and seal there. And unfortunately, for Ocean Hill-1, the reservoir was the issue there. This 3D seismic for us has already eliminated areas of much better reservoir quality that we can interpret as we start to receive more processed versions of the 3D seismic cube. We'll be able to do our geophysical work to understand exactly where we want to put that bottom-hole location and then start to move that well towards a potential appraisal in calendar year 2025. It's a really big piece of upside for the company.

The Ocean Hill-1 well, the gas composition is very similar to that. We've seen Walyering very low impurity and therefore requiring very little capital to bring that field to market. It's only 4 kilometers away from the compressor station of the Dampier to Bunbury natural gas pipeline. So similarly much like Walyering, an above ground time point in an adjacent and proximal area to the field. And this is something that we should all be very excited about.

People have been trying to acquire the Ocean Hill 3D seismic since 1991 when the Ocean Hill-1 well was drilled. And it's a massive boon for the company to be able to get the land access and acquire that seismic. And this is something that we are really excited and looking forward to as we continue to progress our gas acceleration strategy.

Just a few comments on the West Australian energy market. Spot prices have sort of come off a little bit. And that's with the fact that we've seen large domestic gas suppliers come back into the market, particularly from Macedon as well as at the northwest shelf through the Karratha Gas Plant. We did see a period of time during the quarter where there were some unplanned averages at the Wheatstone gas field. And that saw substantial draws on gas storage.

If you look at the chart on the top right-hand corner, you can see actually a long-term dynamic that has been unfolding in Western Australia, where over the last 14 quarters, there's only been a top-up or a replenishment of gas storage on 3 of those 14 quarters. So as we start to see those underlying stored reserves withdrawn, we expect to start to see the spot price rise as gas buyers start to come back to the short-term market.

Given that we are an electricity generating aspirant into the West Australian market, it's key for us to keep an eye on what's happening in electricity markets here in Western Australia. Again, gas made up 42% of the total fuel generation of electrons in Western Australia over the last quarter. That's an important thing to recognize given that the state government continues to maintain their ambitions of turning off the coal-fired power stations, which do represent about 30% to 40% still of WA's daily electricity generation.

The Western Australian average electricity price for the quarter was around $80 a megawatt hour with peaking gas pricing of $738 a megawatt hour occurring over 120x in the quarter with an average of those peak periods of $169 a megawatt hour. As you'll recall from our electricity generation and South Erregulla announcement, we're looking at consuming around 8 gigajoules per megawatt hour. So in terms of that $738 a megawatt hour, you're looking at around $82 a gigajoule for gas that's sold into those peaking times.

So the electricity market continues to be a very interesting place for fully integrated economics. And we believe that the advantage geographical location at the South Erregulla gas field, which sits on land, sits underneath land, owned by Strike, adjacent to existing transmission lines and future transmission upgrades and extensions. We believe we can make a higher return by generating that gas into electricity than if we were selling it into the Western Australian domestic gas market. So we will continue to keep a close look on WA electricity markets as they continue to evolve over the 1 to 2 years whilst we're in construction should that project receive its capacity and network access quantity.

Finally, the catalyst that we've been sort of chewing our way through throughout the year, we've completed our Ocean Hill 3D seismic. We've drilled and successfully discovered condensate and gas accumulation at Walyering-7. We completed our recertification of our South Erregulla reserves and released the integrated development plan for gas to power there. We're drilling the Erregulla Deep-1 well. That well is at 3,709 meters as of the printing of this report. We did unfortunately suffer 11 days of downtime for the rig there, which is predominantly at the rig operator's cost. That is back underway. And we're back into drilling operations. And we're looking forward to seeing the final results of Erregulla Deep-1 in the coming weeks.

That moves us into the Booth-1 well, where we get to sit in the non-operator seat for the first time in a very long time. And we're excited to see the results there. And we're hoping for a great result, along with the joint venture there. And then we've also allocated the final well slot that we have for the year to Walyering East, which is a very interesting accumulation. It is 4.5 kilometers to the northeast of the Walyering gas processing facility. It has a large structural closure alongside the north to south faults that we have seen as the primary migration pathways for hydrocarbon charge, which is also linked to the reservoir preservation.

And we're looking forward to drilling Walyering and that should occur around December. That's timed nicely with the completion of the PGP to DBNGP crossing at Mondarra that [ APA ] is in construction on, latest estimates see that that pipeline crossing being available in December. And Walyering East is well timed to potentially create additional gas marketing opportunities for Strike from delivering gas into a broader customer range with a larger short-term liquid market in the DBNGP.

A few things that unfortunately occurred during the quarter, we saw a further delay to the WA domestic gas policy update. That's been pushed into August. And we expect to see that report out in sort of mid-August or so. We continue to lobby the government around some of the benefits that being able to export a portion of our resources and reserves would give to Strike. And that would sort of support an ongoing exploration and appraisal program, particularly whilst we are in a big construction phase with West Erregulla and South Erregulla FIDs slated in the second half of this year.

As I pointed out, that West Erregulla ministerial EP approval occurred. And we're really pleased with that as that was one of the larger -- last and large items to tick off for us to be able to contemplate that FID.

That really concludes a great quarter by the company. We continue to evolve as a dynamic producer of energy into the West Australian market. And we are continuing to take our assets into development. And I think that it's probably fair to say that the current market dynamic for our shares do not reflect what we see as a unique irreplaceable series of assets that have a very, very bright future in front of them.

And I will continue to encourage our shareholders and supporters to stay with us on this journey as it's a really exciting time as we look forward towards the second half of our gas acceleration strategy.

That's all I really want to go through this morning. Thanks, Emma, open to Q&A.

[Emma Alexander, executive]

Paul, we had quite a few questions come in and I'm just touching on probably the last -- speaking about with the question from [ Richard Cook ] saying that since the South Erregulla result, STX has lost approximately 50% of market cap. In light of the positive quarterly and continued positive announcements, which would normally result in share price depreciation, the share price continues to trade at multiyear lows. Has Strike engaged or paid for any professional advice in the last 6 months in regard to the possibility of a hostile [indiscernible]?

[Stuart Nicholls, executive]

Thanks, Richard. We do maintain a defense adviser, which is Macquarie Bank Limited. And we do see corporate advice from Macquarie on a case-by-case basis. I think what you can also see that sort of occurred contemporaneously with those unfortunate results at South Erregulla 2 and 3 with Strike's entry into the ASX-200, which is obviously a market that attracts a lot more long and short funds.

And the shorts in Strike have risen considerably since the inclusion into the 200. Advice from Macquarie indicates that the sort of shorts have broken up into sort of 3 segments. There's the general people that are shown anything energy or ASX related, there's probably a portion of the shorts that are related to people expecting downside news from the company.

And then there's a last group of shorts where there are a lot of funds that either have to be long or short in the ASX-200 and with a rapid depreciation in the company's market capitalization on its entry into the 200. I think a lot of those funds defaulted to short. So I expect to see an unwinding of that short position to a degree at the rebalance at the end of September, where Strike is likely to be pushed back down into the ASX-300. And that might see some of the positive news that we continue to generate operationally at the company and financially and start to generate share price appreciation. So it's not long now until the end of September.

I know it's a really tough period to keep your eyes on the share price as well as what's coming out of the company. No one is more frustrated than me, Richard. And -- but unfortunately, not in control of that part of the company. All I can keep doing is delivering and executing our gas acceleration strategy as we have done. So I hope that satisfies your question.

[Emma Alexander, executive]

We have a question from [ Matthew Walker ]. What do you expect quarterly revenues from Walyering will get to after you tie in to the other pipeline and debottleneck facility? And when do you expect this to occur?

[Stuart Nicholls, executive]

Thanks, Matt. Right now, we are focused on ensuring that the Walyering-7 test is completed. The total reserve and resource position of Walyering-7 is incorporated in our understanding of the available volumes for sale from Walyering and then tying that well permanently into the Walyering facility. That should allow the company to start to use some of the spare capacity in the plant. That will lead us towards the latter part of the year.

Gas marketing activities right now have not kicked off for our DBNGP volumes. It's something that we're looking at. We do have a couple of customers that we have unfortunately disappointed through the South Erregulla appraisal program where those gas contracts, unfortunately, will not go through to sales due to the fact that the South Erregulla field is no longer a domestic gas project, but a gas to electrons integrated development. So we're discussing how do we deliver additional gas to those customers through proposed connection between PGP and DBNGP. And we'll make further disclosure on that as it comes.

[Emma Alexander, executive]

So a question from [ Scott Ashton ]. Does the realized gas price of $7.82 per gigajoule for the quarter reflect a weighted average price? Or is there a spot component to this? Or is it all the Santos GSA uptake?

[Stuart Nicholls, executive]

Scott, it's both the Santos GSA as well as the Alinta GSA as well as, as available volumes that we deliver into those gas contracts, which also have their own individual pricing dynamics. As you'll recall, the Santos contract is U.S. dollar denominated. The Australian dollar continues to float around in that $0.65 to $0.67 per U.S. dollar range. And so you do see some volatility on the gas prices achieved based on that exchange rate.

The other thing to note is that our condensate volumes are also U.S. dollar denominated as we sell those into gas marketing -- sorry, into condensate marketing arrangements at [indiscernible]. And that will also generate volatility in our revenue generation through that U.S. dollar exposure as well as international Brent prices moving around.

[Emma Alexander, executive]

One here from Mark Wiseman on West Erregulla. Is there a gas price formula framework in the 2019 [ DAX ] sales agreement? Or is this effectively a fresh price or terms negotiation for that 100 petajoules based on strengthened market?

[Stuart Nicholls, executive]

Yes. So the gas sales agreement option without sort of breaching any part of the confidentiality there, Mark. It does have a formula. And we did indicate at the expiry of the fixed gas price that when Strike conducts and executes that formula and it does result in a price that's much closer to the current market price of gas in Western Australia. Unfortunately, I can't devolve what that formula is. It's part of a confidential agreement between ourselves and Wesfarmers. But we have tried to provide some indication of where we think that gas pricing is going to go. Should Wesfarmers execute their option and convert their 100 petajoules from an option back into a gas sales arrangement.

[Emma Alexander, executive]

And an interesting one we have from Scott Ashton. If Booth-1 result is a commercial success, how would Strike monetize its equity interest i.e. would we stick around for development or divest? And do we have sufficient funds to participate in further [indiscernible] activities in L-7?

[Stuart Nicholls, executive]

Great question, Scott. We picked up these assets through the acquisition of Talon Energy late last year. This was a farm in arrangement that Talon had made with Triangle Energy. Given that the business was not receiving any value for these assets, we continue to push forward and participate in the wells. I would say, given that it's our only non-operated position in the basin, if we had any noncore assets, these would probably be it, because given we're the non-operator in that. However, we are in the business of discovering and producing oil and gas. And we'll wait and see what those -- what that well result delivers us before we make any decision. We do believe that there is some prospectivity for gas and oil accumulations in the Booth-1 well.

Strike has had quite a bit of condensate upside at Walyering-7. And we've just recently completed a 1,000-hour test on a gasoline generator with a load connected to it. And we have seen that condensates from Walyering can perform the role of gasoline in a gasoline generating engine. So depending upon what we see at Booth-1, Scott, whether its gas or oil or both, I think we'll make a decision from there. There's no hard and fast rules for what we plan to do going forward.

[Emma Alexander, executive]

And Stuart Howe has a question on the West Erregulla FID. What are the conditions precedent now for it? Do you need all of the AGIG binding terms and agreement at WA domestic gas policy update and new Wesfarmers GSA and then JV approval, do you need all of these or just some or anything else?

[Stuart Nicholls, executive]

I think seeing the WA domestic gas policy update presented is a key piece of information that would allow Strike to inform its gas marketing activities going forward. We obviously have that option and arrangement with Wesfarmers. We do see that as the foundation of the financing of our project. And so we are working with Wesfarmers to convert that option to a gas sales arrangement should that choose to do so. And obviously the joint venture needs to take it's FID, which would require us to conclude the field development planning, which is underway between the 2 parties. The gas needs to go somewhere. So concluding the development agreement and gas processing services agreement with Australian Gas Infrastructure Group are also critical documents for the Strike Board in order to be able to contemplate an FID.

I'm pleased to say, on all fronts, material progress continues to be made over the last quarter and in front of us. And we don't see a huge amount of un-agreed key commercial situations between now and being able to take FID. So that project continues to derisk and is on its way, I'd say, to a development decision. We've been waiting for a long time. So the company is very excited to get West Erregulla into development and construction as it forms a key part of our cash generation as part of our gas acceleration strategy going forward. Thanks, Emma.

[Emma Alexander, executive]

So Mark Wiseman has got another one on Ocean Hill. Do you intend to conduct a farm-out process prior to drilling Ocean Hill-2?

[Stuart Nicholls, executive]

It's a good question, Mark. So a long way about answering this one. So I'll put a challenge to my drilling and completions team to demonstrate to me just how cheap they can make a Jurassic well. And we'll be looking to conduct that at the Walyering East drilling. The preliminary numbers that I have seen are very competitive for well costs in the basin. And should we be able to deliver a Walyering East well at the prices, the drilling and completions team have set themselves the target for, I would say that the small amount of capital required to see that first Ocean Hill-2 well is something that is well within the company's financing and something that we would probably want to see at 100%. Things like the large Permian structures out to the eastern side of the Dandaragan Trough in Arrino and Kadathinni continue to be very large amounts of future upsides for the company, but with the deep Permian wells probably out of reach in the balance sheet of the company, whilst we're going into this large construction phase.

And I would say that that's -- those are some assets that we may contemplate looking to farm out in the near term -- sorry, over the next year or so as we start to receive processed volumes of the seismic over there, because I think that they represent some big structures that can attract third-party interest.

For us right now, the very low cost that's potential to see the result of Ocean Hill-2 as well as the very low development costs. We've completed the gas processing facility at Walyering for $24 million, the well completions for $5 million. And I'm pretty sure if we had our time again, we could do it a lot cheaper and faster than what we did at, noting that Walyering went from discovery to first production in 21 months.

So I see Ocean Hill is a really big return lever for the company, a large 2C 306 petajoule resource. And we're so close to seeing that -- the result of that next well. If it is well within the company's financing ability, I think that we should retain 100% going into that well.

[Emma Alexander, executive]

And this next question is quite relevant, Matthew Walker is asking. You have just said that Ocean Hill is an exciting prospect and of potential significant value. So what is your opinion on why the most recent Macquarie reset attributed zero dollar value to any prospective resources in your portfolio including Ocean Hill?

[Stuart Nicholls, executive]

We got to unmute the participants and get Mark Wiseman to respond to that one. But no, it's all good. I can understand that after the back of the South Erregulla 2 and 3 wells, that's quite -- very quickly demonstrated that we are an upstream business. And that we do and will continue to face upstream risks, particularly inherently in our exploration and appraisal aspects of our business.

Ocean Hill, I think, because it had a well drilled in 1991 and produced non-commercial rates of gas to surface, there's obviously a level of skepticism around the ability to generate conventional commercial flow rates of gas from that structure. However, I think the company's track record of doing that exact same thing at Walyering and really getting underneath the hood of the Jurassic Cattamarra formation and understanding how those sand channel fairways have been laid down. How we identify those on seismic and how do we target the areas of better reservoir development in order to be able to generate the flow rates that we've seen. We can apply those learnings and understandings to Ocean Hill.

The last Ocean Hill -- Walyering, to give you a little quick history lesson. We had a discovery in 1971, flowed 13 million standard cubic feet a day, followed by 2 wells that flowed single-digit million standard cubic feet a day. That nothing happened until about the year 2000 when Walyering-4 well was drilled, that was drilled into a water field compartment of Walyering.

And then Strike came along some 20 years later and demonstrated a flow rate from Walyering-5 of 78 million standard cubic feet a day. So we are looking to apply the exact same recipe that we have worked our way through Walyering. Walyering has always been the dress rehearsal for Ocean Hill. And we're excited to get after it. And all we can do is continue to point to our track record and demonstrate that we are a successful explorer prose and developer of gas assets in the Perth Basin. And that Ocean Hill does, in our opinion, represent an amount of upside that should attract a valuation to that. So encourage Mark to review his valuations and, Matt, thanks for pointing that out.

[Emma Alexander, executive]

And [ Jacqueline ] has a question on how many more restarts are there as part of the rechurn with MinRes and other exploration drilling for STX in calendar year 2025?

[Stuart Nicholls, executive]

Yes. So our last exploration appraisal well that we have, it was a single slot left is the Walyering-8 well, which we've announced today. Next year is subject to cash generation from Walyering. We mainly have a slot for Ocean Hill-2 in the first half of next year. But we're really moving into development drilling at West Erregulla. So those slots are earmarked for West Erregulla post FID and are contingent on taking a final investment decision at West Erregulla.

So we're really starting, as you can see, the cash burn from the quarter has really been heavily skewed towards exploration and appraisal. Those are really one-off items for us. We're going to see that wind down considerably. And as we start to move into development and construction in West and South Erregulla, the financing for those projects is subject to those final investment decisions, which we've identified through the Macquarie financing facility.

So outside of Ocean Hill next year, which as I said, is subject to additional gas and cash generation from Walyering. We are starting to move into a more construction phase for the next 1.5 years.

[Emma Alexander, executive]

Scott Ashton is asking [indiscernible] costs for West Erregulla. Is AGIG still a build-own-operate model with the tariff? And is the expired CSBP contract a key requirement for you to move towards FID?

[Stuart Nicholls, executive]

Yes to all of the questions, Scott. So the Australian Gas Infrastructure Group is -- yes, it is a build-own-and-operate model with Strike tolling its gas through. So rather than CapEx, it's an OpEx for the company. So we'll toll that through. Obviously, prices for construction have risen in the background since we first contemplated trying to take West Erregulla as a development without unfortunately those environmental approvals taking a considerable period of time.

Of our, let's call it 45 terajoules a day share of gas production net to Strike from West Erregulla's proposed development, 25 TJs could be earmarked for Wesfarmers. It does require them to convert their option to a gas sales arrangement. And that's something that we continue to prosecute with Wesfarmers in advance of the final investment decision.

[Emma Alexander, executive]

So what value has Strike added to the assessment of prospectivity for the Booth well? Do you have a chance of success?

[Stuart Nicholls, executive]

We haven't published our own resources and prospective resources for Booth-1. We continue to support the operator, Triangle, there. And we'll wait to see what those –- what that well delivers before we start talking any numbers.

[Emma Alexander, executive]

Another couple from Matt Walker. Whilst you say exploration costs are winding down, you're planning to do a lot more buildings. So can you comment on the medium-term cash flow and liquidity outlook and whether any capital raising will be required to cover all anticipated CapEx, including allowance for possible overruns?

[Stuart Nicholls, executive]

Yes. Thanks, Matt. As you can see, Walyering is moving its way towards $80 million plus cash flow generation per quarter, very high margin, $0.60 per gigajoule production costs outside of some royalties and paying off the Strike overhead is a decent free cash flow generation and EBITDA that will come out of Walyering. When we start to move the projects through into construction, each one of those projects comes with its own unlock of development financing from Macquarie. As I've indicated, with $153 million and the forward outlook for Walyering, the company is funded to deliver its gas acceleration strategy. Activities outside of that strategy remain subject to higher production rates at Walyering and cash flow generation. So that's where we sit at the moment.

Given that South Erregulla and West Erregulla are very discretionary activities, we would see the sequencing of those projects is critical for the company to avoid needing to raise any equity. Given we're the operator in both situations, we've got an ability to influence time frames. And the company has currently no intentions to come towards the equity markets to fund the development of those 2 assets.

[Emma Alexander, executive]

You touched on this a bit before, but there's still a few questions coming in on it and I'll just turn that them all up into one. But regarding the shareholdings, what actions has the Board taken to mitigate market manipulation? And has there been any reported -- have you reported those actions to the regulators at all?

[Stuart Nicholls, executive]

Without sort of going into any details that aren't really required for public consumption, I am deeply frustrated by the continued delivery of success at Strike post the unfortunate results at South Erregulla, which has not -– that has not shown in any sorts of price depreciation. We do see the short position of Strike as a fairly material overhang on the company's share price at the moment as well as final costs for West Erregulla and South Erregulla, not having been delivered into the market just yet for us to demonstrate that there is no need for equity.

So work with us and I think that you'll see that that share price can start to appreciate. As I said, the rebalance of the ASX-200 in September and the clarity on Strike's financing positions as we move to financial close with Macquarie Bank and start to get the FID related numbers of both West and South Erregulla into the public domain. So it is a challenging situation. And we continue to monitor the share registry, the short position.

But really, at the end of the day, my job is to deliver gas and condensate projects into the West Australian energy market. And I believe that that's the best way to appreciate the value of the company. And that's where I spent the bulk of my time.

[Emma Alexander, executive]

Do you anticipate Gina Rinehart looking to take over Strike at some point?

[Stuart Nicholls, executive]

Like I said, I believe Strike has explored its way into an irreplaceable series of assets at a very unique time in the energy transition in Western Australia. I see our gas fields are supporting long-term gas demand in both electricity and industrial gas markets where we have a large industrial gas market here in WA. And the integration of the South Erregulla project into peaking gas power is exactly what the state government and the federal governments are looking for as the state rolls out additional renewables of batteries and starts to unwind the coal.

So I don't see another company in the state with similar assets and diversification across multi-geological segments and a large wholly owned operated position like Strike has. And I can imagine both energy users, energy producers could cover these assets at some point in time in the future. All we can do right now is continue to deliver our sort of derisking outcomes and move these assets through into production.

I would note that Strike is on the verge of receiving its production license for West Erregulla. That will be the third production license we've received across our suite of assets. And I think that's the third -- the only 3 production licenses that will have been issued in the Perth Basin since Strike entered into the basin with Waitsia and Beharra already producing into their existing license arrangements.

We've also received environmental approval across 3 gas fields, which is pretty unique on an Australian setting. And so as those projects move from prospective to likely and probable, I think that the realization that they are going to be moving into production starts to improve the attractiveness of those to future shareholders, investors in our story and anybody else that they want to invest in those in other ways.

[Emma Alexander, executive]

Well, a little follow-on from that. And we've probably got time for a couple of last quick ones. But there are others coming in. If we don't get to them, feel free to reach out to me via e-mail or phone. But on Hancock, can you please comment on the JV relationship at West Erregulla, including the AGIG build and operate in as much as is it all tracking positively and proceeding as planned?

[Stuart Nicholls, executive]

Like I said, we are on our way to a final investment decision. We've got a couple of outstanding items on the field development plan. But that's largely documented between the 2 joint venture partners. There, both parties ascribed to the Australian Gas Infrastructure Group build-own-and-operate model for the gas processing of the gas from West Erregulla through into the Dampier to Bunbury natural gas pipeline.

So all in all, we see a positive relationship with Hancock. And we wouldn't be saying that -- we wouldn't be able to move that asset towards final investment decision if it wasn't the case, so yes, pleased with how things are.

[Emma Alexander, executive]

And on the peaking power plant, has there been any feedback from AEMO? And what date is the decision made?

[Stuart Nicholls, executive]

Yes. So this peaking power station is very uniquely placed at the northern end of the Southwest interconnected system, where generally power, when the wind is not blowing, flows from Perth up to Geraldton. That's meant that the northern end of the Southwest interconnected system has suffered from considerable intermittency over the last few years as the legacy 34-year-old Mangara gas power station has reached the end of its life really.

It was asked to turn on last year. And it was incapable of doing so. Post Cyclone Seroja, the grid in the northern end of the [indiscernible] was unable to be reenergized as there was no thermal or spinning reserve capacity up there. So we see the development of the South Erregulla power station as a really critical piece of infrastructure to the northern and to the Southwest interconnected system.

For those political spectators here in Western Australia, people will realize that the WA government is inherently linked to the power -- the electricity dynamics in Western Australia through their ownership of Western Power as well as Synergy, the polls and wires and also one of the major gas electricity generators.

And so we do see a strong support from government for this power station. And that trickles all the way through to AEMO. AEMO need to go through their process in August for capacity allocation and award. We put our best foot forward. We've put off South Erregulla peaking power station forward as a committed project.

So subject to the award of that capacity and the network access quantity from Western Power; where we have received a letter of support for our project to the AEMO submission from Western Power and from members throughout the state government departments. On receivable of that network access quantity, we believe that we'll be able to take that project into construction.

And so we're eagerly awaiting that information in August that we're going to award capacity and then that resulting price of that capacity in October.

[Emma Alexander, executive]

And I think we'll finish on one last one because if I don't ask this, there'll be rumors everywhere. But have there been any takeover approaches from other parties in the last 3 months?

[Stuart Nicholls, executive]

If there's anything to disclose that the Board of Directors deemed as material price-sensitive information that the shareholders are needed to know, we would have released that. And that's all I need to say on that matter. Thanks, Emma.

[Emma Alexander, executive]

And there was one last one, that wasn't a question, but congrats on a fantastic quarter. The share price sucks, but there's huge upside, well done Stu and the team. So we'll finish on that.

[Stuart Nicholls, executive]

Okay. Well, cheers everybody.

[Emma Alexander, executive]

Thanks, guys. See you.