Strike Energy : 31-01-2017 December 2016 – Quarterly Report and Appendix 5B (2 MB)

Strike Energy Limited - December 2016 Quarterly1

STRIKE ENERGY LIMITED ‌‌‌‌‌‌‌‌‌‌‌

QUARTERLY REPORT

For the period ending 31 December 2016

Southern Cooper Basin Gas Operations

• Exceptional pilot operating performance with 98% uptime

• Re-initiation of gas desorption was achieved within the estimated 1-4 month timeframe

• Targeting commercial gas flow rates in Q2 2017

• No reportable safety or environmental issues

  Organisation and Management Team

• Strengthened capability with reduced overhead

  Financial Position Strengthened

• $4.5 million capital raising

• $3.6 million R&D facility ($2.3 million undrawn)

• US asset sale reducing net debt

• Significant operating and organisational cost savings of ~$1 million per annum

• Cash balance of $7.2 million at quarter end

• $6.0 million SA PACE GAS Grant application submitted

I am pleased to report a positive and productive quarter for Strike Energy. Production Testing

Production testing continued during the quarter with a focus on uninterrupted water production from the Klebb wells. The beam pump on Klebb 1 recorded 99% availability with exceptionally high up-time also achieved for the jet pumps on Klebb 2 (98%) and Klebb 3 (99%).

Post completion of the quarter, Klebb 3 re-initiated gas flow, affirming our confidence of achieving commercial flow rates from the current pilot configuration. This has been achieved within the 1-4 month time frame projected in our last quarterly report.

We expect to build upon this success, maintaining high availability, reducing well pressures through uninterrupted de-watering and increasing gas production to commercial rates in Q2, 2017. Additional pilot enhancements will be implemented with the near-term deployment of beam pumps in the Klebb 2 and 3 wells to ensure that future peak gas flows are not constrained by the mechanical limitations of the jet pumps.

The distributed power project was also successfully completed with annualised savings of $250,000. This project has delivered 100% standby generation, which provides redundancy and allows maintenance to be completed without interrupting production at the pilot.

Management Changes

We are pleased to welcome Matthew Montano as our new CFO and Company Secretary. Matthew assumed the CFO role early in the New Year, with a transition period to the role of Company Secretary alongside our outgoing CFO, Sean McGuinness, who leaves us with our best wishes after 3 years of dedicated service.

Detailed later in this report are a number of initiatives that have been implemented to strengthen and align our Corporate, Engineering and Operations teams. Annualised savings of over $700,000 have been achieved whilst significantly enhancing our depth of experience across key functional areas.

US Operations & Asset Disposal

At the end of the quarter, we announced the final divestment of our US operating assets. The completion of this withdrawal from the US will allow management to focus entirely on the Group's key assets in the Southern Cooper Basin. The US asset sales reduced net debt by $US2.4 million and eliminated any future financial obligations in connection with these assets.

Finance and Commercial

During the quarter, our $4.5 million pro-rata underwritten non-renounceable rights issue was over-subscribed. We thank our shareholders for this continued support.

Our funding capacity was further enhanced by the establishment of a new $3.6 million R&D facility for eligible expenditure during the current financial year. A drawdown of $1.32 million was made in December, 2016.

The PEL 96 Joint Venture agreed to the upgrading of the Phase One Area to a Production Retention Licence and the formal regulatory application for conversion. This will provide Strike with additional funding options.

We also submitted our application for grant funding under South Australia's GAS PACE Grant Program to stimulate upstream supply into South Australian energy and gas feedstock markets. The announcement of successful applications is expected in February.

East Coast Gas Markets

Continued tightening in East Coast gas markets presents an extraordinary market opportunity for Strike's Southern Cooper Basin Gas Project (SCBGP). We are confident that we have the right team and resources in place to capitalise on that opportunity.

David Baker, Managing Director Southern Cooper Basin Gas Project Highlights

• Re-initiation of gas desorption from Klebb 3 within the estimated 1-4 month period

• Testing continued to track to plan with average 98% uptime for Klebb 1, 2 and 3

• Phase 2 of site distributed power project completed

The re-initiation of gas flows from Klebb 3 following quarter end confirms that the pilot is tracking to plan. We expect to build on this through the current and subsequent quarters, to confirm key pilot test outcomes, as further dewatering is achieved.

The completion of the distributed power project delivered improvement in well up- time as well as significant fuel and generator rental savings exceeding $250,000 per annum.

No reportable safety incidents occurred during the period.

Historic Klebb 3 Performance

In February 2016 we observed our prior peak gas flows from Klebb 3, with this gas coming from a relatively small area around the well 1 which was below the critical desorption pressure. Mechanical issues with the previous jet pump configuration limited our ability to build a material drainage area below the critical desorption pressure.

Current Klebb 3 Performance

The de-watering effort conducted since April 2016 2 has increased the drainage area of Klebb 3 by approximately three times. Average reservoir pressure within the Klebb 3 drainage area has been reduced by an estimated 30% over the past 9 months 3 . We are extremely pleased with this performance, supporting our confidence in our ability to successfully dewater the reservoir across a large drainage area.

4 The recent re-initiation of gas desorption from Klebb 3 was realised at an estimated pressure slightly lower than observed in February 2016. This re-initiation of gas flows occurred approximately 3 months into the 1-4 month estimate provided in the September 2016 Quarterly.