Been off air for a little while but certainly been keeping a keen eye on STX's progress. Unfortunately my eye is a bit bloody & bruised at the moment!
IMO now is the opportune time for a predator to strike (pun intended). With the body blow from the failed SE flow testing and with the accompanied (over)reaction from the market, STX sits exposed and ripe for an opportunistic bid (or 2, or 3... fingers crossed). It is this period of FUD that opportunistic players wait for....
To be clear, I did not sell 1 share before the SE flow test. Having been invested in O&G stocks for over 25 years, I know very well the risk & reward scenario. There was not a red flag for me that SE would have any inkling of what transpired. Certainly not both wells. Do I think SE is a write off? Not at all, in fact I think there is a reasonable chance the 2 wells can be remediated to a commercial degree but highly likely a further 2 or 3 wells in a better (now) known target will be required and it will flow. Problem is it will need more capital and more time, possibly 3D to shoot as well... more time & money That in effect is why SE has been / will be put on the back burner and why very little value will be attributed to it when running a NPV model (I tend to run SOTP).
Regarding some of the valuations from brokers/IB's... I take with a grain of salt. In my experience of dealing with such parties on the buy & sell side, it's the "unknown" vested interests you want to know about... and sometimes it's incredibly hard to know until too late. I think 618 has done a stellar job with the modelling and I fundamentally back those numbers. It is important to understand and respect the macro and micro analysis of your portfolio holdings and tweak when required (i.e. post SE event). How else will you sleep at night... hope is of little comfort to me.
I still have confidence in STX management however fair to say I have lost some of it. I am still holding as IMO, like it or not, we are set-up for corporate action, specifically given 21c is IMO not fair value of STX's assets both current & potential. Further consolidation in the PB was always on the cards and I was of the belief that STX could be the one to acquire (ala TPD) and keep growing organically to become a multi B$ coy However now the tables have turned. STX are now the hunted. And in terms of future catalysts I feel that the M&A play is the one that will create the greatest value uplift. I am not downplaying the significance of the Walyering asset (cash is king) and future exploration potential of OH, Arrino and Kadathinni prospects etc. but the reality is WE is the asset of great value to potential acquirers. So as we all know that includes the likes of MIN, BPT, Hancock and perhaps STO, WDS and some international "friendlies" from Japan, Korea etc. And this significant value can be deemed from either gas needs for their growing mining processing / downstreaming activities (ala MIN & Hancock) or for the much mooted relaxing of onshore LNG export, which I firmly believe will happen. FWIW my money is on Hancock... it makes the most strategic sense....just hope others throw in some opportunistic bids.
Wrt the VWAP, I have been monitoring this and I agree, by my calcs it is currently ~34.4c. But "they" don't need to necessarily wait until early April to move. By my modelling if we look at 30 day VWAP from 13th Feb (when SE3 was announced) and assuming we stay at this ~21c level, 30dVWAP would be ~23c by late March. If we took from 20th Feb (when SE2 was announced) and again assuming we "magically" stay at ~21c, 30dVWAP would be ~21.5c by early April. So all in all not a huge margin. Worth noting if we want to tentatively lock in dates of March 27th or April 3rd for corporate action... but I do agree that any potential acquirer would want to move now(ish) and ensure STX is digested before further catalysts can disrupt the transaction - i.e Walyering & WA gas export policy.
Now the fun part could be when things heat up with hopefully a competitive M&A play. As an example if we look at SXY in QLD (Senex) there was no other bidder than POSCO (Noting that Hancock did come riding in at the very end as a JV partner) but the SXY board did their best to go from an initial 27% to 34% to the final 40%. Not the greatest premium for some quality assets.
But lets obviously look at the WGO transaction. STX started it with a 40% premium to WGO's "undisturbed" SP of 13.5c or a 34% premium on 30dVWAP. BPT lobbed a bid at 20c, then Hancock at 23c then BPT 25c, then Hancock 28c... STX did up theirs to final 1-1 scrip offer but as we know the final clincher was the 36c HPL bid. That's a ~167% premium to 13.5c pre M&A or ~160% on the 30dVWAP. Not sure if many people realise that was the eventual premium. Not a bad result for WGO SH's given the state of affairs and general sentiment at the time.
Whilst I would love for STX to garner a 167% T/O premium I do not believe that's realistic unless it was a super competitive process. That would equate to 56c at the current juncture or a 142% premium if based on a 30dVWAP of ~23c. I wonder how many here would jump at those numbers? Would be hard to swallow given STX was 50c not that long ago...
At a 40% premium we can see 29.4c now or a 27% premium by late March ~23c 30dVWAP. A 75% premium would give 36.75c now or 59% premium for late March 30dVWAP. You can easily play around with the numbers... and I will keep an eye on the rolling 30dVWAP. Food for thought for all holders. And remember not to just look at SP alone... @ ~36c that's about $1bn Mcap.... is STX worth $1bn given current assets and future asset potential? what price is securing 30 yrs of gas for your mining operations? or perhaps enjoying outsized ROIC if govt export policy is granted? Let's see what the market says. I am prepared to sit and wait this one out.
Please note all the above calcs & scenarios are based on my experience and gut feel.... I look forward to adding more thoughts in due course but for now, back to my day job.
GLTA
STX Price at posting:
20.5¢ Sentiment: Buy Disclosure: Held
(20min delay)