Carnarvon Energy says Dorado ‘the No.1 prize’ despite $88 million investment plunge on Strike Energy

Carnarvon Energy insists it is keeping faith with the stalled Dorado oil project despite opening up a new strategic front with the proposed purchase of a near 20 per cent stake in Perth Basin gas play Strike Energy for $88 million. Carnarvon chair Rob Black said on Tuesday Dorado, off north-west WA, “remains the No. prize” and the company was still “hopeful” a development would “get there one day”. However, the junior has been forced to look elsewhere for opportunities after the operator and 80 per cent partner Santos indefinitely deferred development of the field, much to the frustration of Carnarvon. “We looked at a number of different things, we know Strike well, we know the team and the assets, and this really stood out,” Mr Black, a veteran stockbroker who now runs Wilsons Advisory’s Perth office, said. Under the deal, Carnarvon is taking up a 19.9 per cent stake in Strike via a two-stage placement at 12¢ a share - a 19.7 per cent discount to the latter’s last closing price of 14.9¢. The new funds, together with Strike’s existing cash and debt facilities, will enable the company to fully fund nearly $300m of committed expansion in the Perth Basin, including a cost blowout disclosed on Tuesday at its gas-fired peaking power station at South Erregulla and a final investment decision on its West Erregullas gas project, where it is partnering with Gina Rinehart’s Hancock Energy. “Strike has a unique asset base with significant potential and Carnarvon’s investment provides the financial capacity and flexibility to realise this potential,” Strike chair John Poynton said. Under the placement, some $52m will be raised in the first tranche. Carnarvon will tip in the balance subject to Strike shareholders in September approving a share purchase plan by their own company to raise up to $15m at the placement price. As a result of the investment, Carnarvon has scrapped a $125m proposed capital return announced in March. Mr Black said the group was mindful of retaining enough cash to deploy on Dorado if or when it was given the go-ahead. “It’s still so important to keep it for Dorado, because that’s the No.1 prize for us,” he said. “It’s just the frustration of being a minor partner … we really don’t have much control over it. “It’s so important to maintain the funding and be well funded so that when development happens, shareholders can afford that. “But we can look for some other opportunities between now and then.” Stockbrokers Euroz Hartleys noted on Tuesday that Carnarvon had been trading at just its cash backing for several months, adding that it “provides exposure to WA domestic gas market and outside of this subscription agreement the company will remain funded to execute” Dorado. A Strike update issued with the Carnarvon news also revealed the forecast cost of the South Erregulla power plant had been blown out by $45m from the $137m indicated in November. It also disclosed that Walyering’s production reserves would be downgraded in the wake of disappointing results from the field.