Carnarvon Energy’s play makes it kingmaker over rival Strike’s future

Gas exploration in the Perth Basin.

Carnarvon Energy’s purchase of a 19.9 per cent stake in its rival puts to bed any plans that may have been brewing by Beach Energy or billionaire Gina Rinehart to consolidate the Perth Basin, say market experts.

Strike Energy has been subject to months of speculation about being a takeover target by parties like Mrs Rinehart’s private company Hancock, Mitsui or private equity firm The Carlyle Group.

But a party has finally stepped up and outlaid cash for the embattled natural gas explorer that needs more money to develop projects in the Perth Basin.

Some sources believe that negotiations started with talks about a merger deal before it eventuated with Carnarvon Energy buying 19.9 per cent in Strike Energy for $89m or 12c per share.

The loss-making Strike, advised by Macquarie Capital, had its back against the wall in terms of it needing funding, with questions about whether lender Macquarie was placing pressure on the energy producer to top up its cash balance.

While announcing the strategic placement, Strike also downgraded its guidance, indicating higher costs on building the South Erregulla Peaking Power Plant at $21.2m and that Final Investment Decision on its West Erregulla gas project would now be in the second half of 2026.

Strike jointly owns the West Erregulla project with Warrego Energy, which is owned by Gina Rinehart’s Hancock.

Any downgrade earlier before the equity raising supported by Carnarvon would have seen the group raising funds at a higher cost because its share price would have fallen earlier.

Perhaps it was boardroom politics or disagreement over price that thwarted the full blown merger plans, but market observers believe a merger of the two groups would be an inevitable outcome.

The benefit for the Azure Capital-advised Carnarvon Energy buying just 19.9 per cent is that it buys it time to see if Strike comes good on its Perth Basin development plans before going all in.

But Carnarvon produces mainly oil, operating off the Western Australia coast in the Carnarvon and Bedout Basin, so any group interested in buying Strike Energy would be gaining an exposure to a completely different area, which could be a deterrent or mean they would have to consolidate the Bedout Basin as well.

As earlier revealed by DataRoom, speculation emerged ahead of the weekend about a tie up between both parties, with Carnarvon later said to be buying about 20 per cent of Strike when the pair entered a trading halt on Monday.

Carnarvon owns 10 per cent of the Dorado oil and gas project in the Bedoubt Basin with 80 per cent shareholder Santos and Taiwan’s CPC Corporation owning the remainder.

Carnarvon at December had about $187m of cash and has been under pressure to spend the money before investors demand it back.

After this deal, it will now cancel a capital return program for shareholders but will retain $96m of cash plus $US90m of CPC Dorado carry.

Strike Energy, led by Peter Stokes, said the Carnarvon funding would deliver the South Erregulla power station by 2026 and the planned life extension of the Walyering domestic gas project and progress towards West Erregulla FID.

The deal will happen in two phases, with Carnarvon outlaying $52m to buy 13 per cent before buying the remainder.

The $460m Strike will also undertake a Share Purchase Plan of up to $10m.

More than $300m was wiped from the Strike’s valuation in early 2024 when shares were trading at about 50c on the back of failed appraisal testing at its South Erregulla gas field, and the stock has not recovered.

Shares closed on Friday at 16c.

Dorado is an oil and gas project being developed in two phases in the Bedout sub-basin, and is awaiting FID.

The Dorado and Pavo fields are estimated to contain recoverable contingent resources of 189 million barrels of liquids and 401 petajoules of gas.