Tightening WA Gas Markets Will Drive Energy Transformation

Key Takeaways

• Tightening local gas markets and integrated gas-to-power strategy position the company for higher margins and improved pricing power in a shifting energy landscape.
  
• Strategic funding, reserve growth catalysts, and supportive energy policies enhance long-term revenue prospects and operational flexibility.
  
• Project cost overruns, funding uncertainties, and concentrated asset risks threaten revenue stability, margin protection, and timely execution of growth initiatives.

Catalysts

An independent gas producer, explores for and develops oil and gas resources in Australia.

• The company is set to benefit from tightening Western Australian gas markets and rising domestic demand for reliable gas-fired power, as local legacy fields mature and the pace of renewables adoption outpaces battery storage solutions, positioning Strike as a key provider and supporting future revenue growth and pricing power.
  
• Progress on the integrated gas-to-power strategy, with the South Erregulla peaking plant (and proposed 15MW expansion) on track for near-term operation, will unlock higher-margin revenue streams and provide valuable flexibility in the evolving energy mix, improving net margins and earnings quality.
  
• The recent strategic investment by Carnarvon fully funds core development and appraisal projects-including Walyering, West Erregulla FID, and Ocean Hill drilling-enabling reserve growth and a potential uplift in annual production, supporting top-line revenue expansion over the coming decade.
  
• Accelerated 3D seismic work and independently verified resource upgrades (expected later this year) at Ocean Hill and West Erregulla offer meaningful catalysts for reserve expansion and company valuation, with successful outcomes underpinning future earnings and cash flow.
  
• Government and regulatory policy shifts prioritizing energy security and local gas supply, plus supportive infrastructure positioning near key pipelines and the electrical grid, increase the likelihood of domestic offtake agreements and diversified downstream opportunities-supporting steady long-term revenue and margin upside.

Strike Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Strike Energy's revenue will grow by 37.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -24.4% today to 14.8% in 3 years time.
• Analysts expect earnings to reach A$28.3 million (and earnings per share of A$0.01) by about August 2028, up from A$-17.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$33.4 million in earnings, and the most bearish expecting A$4.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, up from -19.4x today. This future PE is greater than the current PE for the AU Oil and Gas industry at 13.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.59%, as per the Simply Wall St company report.

Strike Energy Future Earnings Per Share Growth

Risks

• The company faces rising and potentially unpredictable project costs, especially related to integrating its South Erregulla power plant with the Western Power grid, which could put sustained pressure on net margins and stretch available liquidity, reducing free cash flow and impacting future capital deployment.
  
• Progress toward final investment decision (FID) on key projects like West Erregulla is uncertain and subject to ongoing delays, joint venture negotiations, and unfinalized downstream options, which increases execution risk; any further delays may result in deferred revenues and unreliable earnings over the coming years.
  
• The ability to fund critical projects and new exploration (e.g., Ocean Hill) is highly dependent on successful completion of the second tranche of equity placement and shareholder approval; failure to raise sufficient capital may lead to refinancing needs or forced project deferrals, posing risks to revenue growth and the pace of value creation.
  
• The revenue stream from existing producing fields like Walyering is vulnerable to field decline and exploration risk, as successful backfilling with new wells (e.g., Walyering West) is not assured, and underperformance could lead to revenue shortfalls or even make it necessary to purchase gas in the market to meet contract obligations, further eroding net margins.
  
• The company's concentrated exposure to a relatively small set of projects and basins heightens operational and geological risks; setbacks in any one project (e.g., resource downgrades, technical issues, regulatory approvals for connections) could result in volatile revenues, adverse impact on future earnings, and loss of investor confidence.

Valuation

• The analysts have a consensus price target of A$0.209 for Strike Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.3, and the most bearish reporting a price target of just A$0.16.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$191.8 million, earnings will come to A$28.3 million, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 6.6%.
• Given the current share price of A$0.1, the analyst price target of A$0.21 is 49.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.