Ann: Perth Basin Strategy & Proposed Merger Update, page-178

It's easy to see why STX and BPT are both so keen on WGO. As per my original post on WGO after I'd purchased WGO shares, the market had significantly under-priced its equity, and why I was fully behind STX's purchase of WHO shares at 23.5c. The other factor behind BPT's bid is the challenge it is having with Western flank, which has deteriorated sharply and may see further reserve downgrade.

The above table also highlights how BPT played with numbers. Their statement that STX is overvalued based on per EV/2P BOe relative to WGO is correct. But they fail to highlight (of course they would) that BPT itself is trading at far higher per 2P BOe multiples than STX, or that the complexion changes significantly once you factor in the 3P + 2C. Not to mention the enormous upside from high lead drills and Haber.

In essence, by using their own low priced valuation for WGO to derive a similarly-low priced valuation for STX and state that STX is overvalued, they are essentially playing the role of a price maker and taker at the same time. This was basically the same game being played by Goldman (in the lead up to the GFC) in their dealings with Dr Burry's CDS position in that Goldman wouldn't accurately price the CDS position accurately until they dumped all their CDO positions and established a net short position, when it became their interest to do so.

An easier example to understand is this. I have a spud farm and I know the wholesale value I can obtain is $1/kg. There are two neighbouring farms (farm A and B) which have been mispriced by the market, say farm A is trading at 40c/kg while farm B is trading at 60c/kg. So I offer to buy farm A at a unit price of 50c/kg (which obviously significantly undervalues that farm), and then I tell the market that I am not interested in farm B because it is "overvalued" at 60c/kg using my offer price of 50c/kg to farm A. I also fail to mention that if I acquire both farms, I can remove all the non-productive land (fencing, duplicated facilities, etc) and extract even more values.

Nice try BPT. I will continue to hold it even tho it is pretty fully priced purely because my entry is quite low (so have quite a bit of buffer to play with) and I know they will continue to enhance future value by screwing other companies.

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