STX 8.33% 26.0¢ strike energy limited

further to the above post, the opening comments from the Potters...

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    further to the above post, the opening comments from the Potters research makes a lot more sense in light of today's ann...

    2 July 2014
    Strike Energy (STX)
    Coals highly productive, water a challenge not a problem?

    Coals appear to have high productivity

    STX has successfully fracced the Le Chiffre and Klebb wells in PEL 96. It appears the fracs have radiated some distance from the well due to very high permeabilities within the coal. One of the key risks was the ability of the thick coals post frac to deliver productivity to the well bore. This is no longer a concern - instead STX considers the challenge is around reconciling the differences encountered and understanding how much water contained within the coals is to be produced before sizeable gas flows from the coals. Results from these two wells will be used to optimise future drilling required to define potential commerciality of the coals. We maintain our Buy recommendation and target price of $0.23/share ahead of further testing.

    With such high productivity perhaps fraccing is excessive.

    Given permeability of the coal was anticipated to be a low ~0.1md, STX planned to return the post frac fluid slowly. Instead, permeability has been a massive 25md and the flowback of injected frac fluid has been far quicker than anticipated. Le Chiffre had 6,400bbls of frac fluid injected into the coal and after a 3 day flow back period had recovered 5,200bbls (or 81%) of volume injected. Given the frac was successful and the coals reported to be gaseous and dry when drilled over 6-months ago; STX has been surprised by the flowback of water and the absence of free gas. STX believes results have “fundamentally altered our understanding of the reservoir system, which has demonstrated exceptional deliverability capacity”. If water is associated with the gaseous coals, we suspect a prolonged test could be required to return substantial gas. With high levels of natural fracturing, we consider future wells may not require fraccing. This could reduce the well cost by ~0.6m or 17%. However, a portion of this capex saving will likely be diverted to fund the installation of sufficient water handling capacity.

    Despite the presence of associated water within the coals, we remain optimistic this challenge can be handled and substantial gas volumes ultimately realised. No change to earnings, recommendation or target price following the results of the early frac test.

    HC
 
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