Howdy all,
Lots to like about today's announcement from my POV. I thought it was a clear and concise communication of STX's strategy to push on with executing their aggressive appraisal and development campaigns, ramping up their journey to becoming a mid-tier producer in the hot WA gas market.
Not sure if many noticed, or even if the market noticed, STX's longer term vision. See under "Phase 3 preparatory activities", STX have laid out a bigger picture to build out their modular gas facility to four processing modules (40 TJ/d each) for an envisaged 25 years life span. Think about that for a bit. STX just articulated a high degree of confidence in it's Greater Errugulla gas fields (WE & SE) that will be able to process and supply up to 160TJ/d over a 25 year lifespan. Multiple those numbers out and STX have reason to believe they will over 1,400PJ in reserves. That's about 1.38TCF of gas. Not bad at all.
Are such reserves achievable? IMO, yes. Last I looked they had well over 1,000PJ in 2P/2C, I recall of that about 850PJ is in the WE/SE fields. Now, it's all about exploring, appraising and building out the resources and converting as much gas as possible to reserves - and doing it as quickly as possible. In any event we will be finding out very shortly once the next two SE drills are completed in the second half of '23. It's going to be an exciting 2nd half of this year... especially once Walyering starts pumping. Walyering might seem small but it's strategic importance can not be underestimated. And after seeing the Trigg results I am now holding higher expectations that these two SE wells will be successful and will provide the foundation for committing gas plant expansion from 40 to 80 TJ/d at the minimum. If all goes well I can see a near future with 4 modules pumping out a collective 160TJ/d. At an assumed price of $10GJ... that's over $500m p.a. revenue. At $12GJ it jumps to ~$700m. And that's just from WE/SE.
What is also noteworthy, is the management of capex. A projected $90m to have the first module delivered turnkey, that's pretty good. In a current environment where we see BPT suffering what seems like endless cost and time blowouts for their Waitsia Stage 2 expansion... IIRC it's gone from an initial ~$500m capex to last estimate $850m and rising. I won't be surprised to see a final $1bn price and likely completion into 2024. This for a 250TJ/d plant. STX is smart in not stressing the balance sheet in phasing their expansion, using Walyering c/f to fund staged incremental development, thereby minimising any blowout CR or debt burden. FWIW BPT isn't the only one to suffer, every project in WA is blowing out, just look at LTR, WES, MIN, LYC, to name a few. It's very challenging environment for WA's resources projects.
Other point to consider is what STX is doing to commercialise Greater Errugulla, specifically focusing on the assets not in the JV with Hancock, i.e. SE Throughout the WGO T/O, STX alluded to putting WE on the backburner... then they tore up the WE gas balancing agreement and then relocated the gas plant onto their 100% owned mid-west farm. Smart move IMO. It's a strategy that will be making Hancock uncomfortable. When will Gina be able to commercialise her 50% of WE? and which gas plant will she look to use to do this? Given what we saw today with her JV's with HAW & LCY to explore and develop lithium, she will be very keen to have the energy for mining / downstreaming. What is the next move for our JV partner do you think?
Interesting times ahead for STX... GLTA
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