Event Strike announced the re-pricing of the gas supply agreement (GSA) for West Erregulla with CSBP Limited wholly owned subsidiary of WES.ASX). The GSA accounts for almost half of Strike’s equity gas reserves at the field (100 PJ of 211 PJ 2P Reserves). Strike stated that the contracted gas will increase to a price that is more closely aligned to current WA market prices for long term gas supply (~$8/GJ). West Erregulla is one of Strike’s key development projects (50% with Hancock Energy after acquisition of Warrego Energy in early 2023), fully appraised (at >90% Reserves level) and awaiting Production License award by the regulator and key Environmental Approvals (final determination from the WA Environmental Protection Agency on the outcomes of its Part IV primary environmental approval application), which in the Q3FY24 report released in April, were stated to be expected ~Q3CY24, before a JV FID (development proposed to be built, owned and operated by AGIG) targeted in ~Q3CY24. Impact The GSA re-pricing is a material uplift to the value of Strike’s gas at West Erregulla. We now assume a contracted gas price under the CSBP GSA of ~$7/GJ, which increases our West Erregulla valuation to $452 million (from $413 million) and our STX SOTP valuation to $0.38/sh (from $0.36/sh). We do note, however, that the option price under the GSA is to be determined which may yet improve our valuation upon first gas.
| West Erregulla Contracted Gas Price Sensitivity | 
| Euroz Hartleys |
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Action We maintain our Buy recommendation and increase our Price Target to $0.38/sh (from $0.36/sh)as a result of the increase in contracted gas pricing and subsequent value uplift at West Erregulla. We see STX as good buying based on value at the current share price with multiple upcoming share price catalysts. Catalysts - West Erregulla production license, environmental approval, FID (~Q3CY24)
- Walyering-7 flow test, targeting 15+MMscf/d and reserves update (~July)
- Erregulla Deep-1 exploration (STX 50%, targeting 278 PJ gross 2U, results ~Aug)
- Booth-1 exploration well (STX 25%, targeting 279 Bcf gross 2U, spud ~end-July)
- WA Domestic Gas Policy parliamentary inquiry report (potential LNG export)-15 Aug
- South Erregulla milestones: Notification of award of capacity (Aug), pricing (Oct), network access quantity from Western Power (Oct/Nov), unconditional FID (Nov)
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