Emerging gas producer Warrego Energy (ASX: WGO) has signed a long-term sales agreement with Alcoa of Australia who will be the foundation customer for the company’s West Erregulla field in the onshore Perth Basin.
The deal covers 155 petajoules of gas, with supply to begin on 1 January 2024. The length of the agreement has not been disclosed.
Additionally, the binding gas sales agreement is subject to a final investment decision on West Erregulla, which is expected in the first half of next year.
But, given that the size and term of the sales agreement with Alcoa, Warrego says it does not need to secure additional sales agreements before making the final investment decision.
Nevertheless, the company intends to expand its gas sales portfolio and is continuing to negotiate with other potential customers.
Alcoa operates three alumina refineries (Kwinana, Pinjarra and Wagerup) in Western Australia, along with two bauxite mines.
More drilling under way to expand gas resource
Warrego managing director and group chief executive officer Dennis Donald said the company is very pleased with the deal to supply Western Australia’s largest and most experienced gas buyer.
“Securing such a large scale and long term [gas sales agreement] with a top-tier customer like Alcoa is testament to the quality of the West Erregulla gas field and the commercialisation strategy adopted by Warrego and will send a positive signal to other potential gas buyers,” he added.
Mr Donald says Warrego is well advanced in progressing gas processing options, which include third party processing and shared infrastructure.
At present, the company is drilling it WE-3 well in the northern area of the West Erregulla field.
At least one further well (WE-4) is slated to be drilled in the next 12 months, along with the possibility of a fifth one (WE-5).
Warrego noted any increase in West Erregulla’s certified resources will be welcomed by the market, and a success at WE-3 could add considerably to the current 513 billion standard cubic feet of gross 2C contingent resources.
Bridge Street Capital Partners last week estimated that if WE-5 goes ahead, that will mean a six to seven month drilling campaign for all three wells.
The analysts pointed out — ahead of today’s announcement — that a firm sales agreement would “pave the way for contingent resources to be converted to resources next year”.
Bridge Street also noted recent industry announcements indicate additional new liquefied natural gas demand will replace diesel fuel used at mines in Western Australia.