Carnarvon’s Strategic Shift: Ceasing Capital Return to Fund Strike Energy Stake
Carnarvon Energy has committed up to $89 million to acquire nearly a 20% stake in Strike Energy, gaining strategic exposure to Western Australia’s growing gas market while maintaining its own development plans.
- Carnarvon to invest $89 million for up to 19.9% stake in Strike Energy
- Investment priced at $0.12 per share, a 19.7% discount to recent trading
- Funds to support Strike’s South Erregulla power station and West Erregulla gas project
- Carnarvon retains strong cash reserves and ceases planned capital return
- Board representation and participation rights secured with escrow and conduct restrictions
Strategic Investment Overview
Carnarvon Energy Limited has announced a significant strategic investment in Strike Energy Limited, agreeing to acquire up to 19.9% of Strike’s shares through a subscription agreement valued at $89 million. This move positions Carnarvon as Strike’s largest shareholder and provides exposure to a diverse portfolio of gas assets in Western Australia’s Perth Basin, a region experiencing rising domestic gas and electricity demand.
The investment price of $0.12 per Strike share represents a notable discount of nearly 20% to Strike’s recent volume-weighted average price, underscoring Carnarvon’s confidence in the value proposition. The deal is structured in two tranches, with an initial $52 million investment securing a 13% stake immediately, followed by up to $37 million contingent on shareholder approval later in the year.
Supporting Strike’s Growth and Project Pipeline
The capital injection will enable Strike to fully fund several key projects, including the South Erregulla 85 MW gas-fired peaking power station slated for completion by October 2026, the life extension of the Walyering domestic gas project, and progress toward a final investment decision on the West Erregulla gas project. Additionally, Strike plans to advance exploration and development opportunities within the Perth Basin, such as the Ocean Hill prospect.
These projects are critical to unlocking value in Strike’s portfolio and meeting increasing energy demand in Western Australia. Carnarvon’s investment thus serves a dual purpose, supporting Strike’s growth trajectory while diversifying Carnarvon’s own exposure beyond its core Bedout Sub-basin assets.
Carnarvon’s Financial Position and Strategic Shift
Despite the sizeable investment, Carnarvon maintains a robust balance sheet with at least $96 million in cash reserves and a US$90 million carry related to the CPC Dorado project. This financial strength allows Carnarvon to continue funding its own development and exploration activities, including the Dorado liquids project and Bedout Sub-basin drilling plans over the next four years.
Notably, Carnarvon has decided to halt its previously announced capital return program, signaling a strategic pivot to prioritise this investment as a superior use of capital. The company’s chairman, Rob Black, highlighted the opportunity to collaborate closely with Strike’s management to create value for shareholders of both companies.
Governance and Investment Terms
In recognition of the strategic nature of the investment, Carnarvon will gain board representation rights upon completion of the first tranche, allowing it to nominate a director to Strike’s board. It will also secure participation rights in future equity offerings, ensuring it can maintain its stake on favourable terms.
However, Carnarvon has agreed to a voluntary 12-month escrow on its Strike shares and certain conduct restrictions, including standstill and voting limitations, designed to provide stability and confidence to all stakeholders during this period.
Financial and legal advisers Azure Capital and Thomson Geer have supported Carnarvon through this transaction, which marks a significant milestone in the evolving landscape of Australian energy investments.
Bottom Line?
Carnarvon’s bold stake in Strike signals a strategic bet on Western Australia’s gas future, setting the stage for collaborative growth and market repositioning.
Questions in the middle?
- Will Strike’s shareholders approve the second tranche and what impact will that have on Carnarvon’s final stake?
- How will Carnarvon balance its own development ambitions with its new role as a major Strike shareholder?
- What market reaction will this investment trigger among other Perth Basin energy players?
