Barrenjoey price target on stx 46c

Barrenjoey

Energy

Onshore Perth Basin – the next gas boom?

Our deep dive into the onshore Perth Basin exploration history and geology, highlights the likelihood for material reserves growth over the next 12 months. Subsequently, significant value could also be created through LNG ullage. We extend our coverage to initiate on Strike Energy (STX: OW, $0.46/shr PT) and Norwest Energy (NWE: N, $0.05/shr PT). We also revise our BPT PT to $2.24/shr (from $2.03/shr) and maintain our OW rating.

Perth Basin – world-class gas resource amid a global gas shortage

The discovery of Waitsia by AWE in 2014 hasreset perceptions of a mature basin; unearthing a new deeper gas play which hasachieved 100% exploration success since, and now discovered ~3.5-5tcf of gas.The low development cost of conventional Perth Basin gas (~A$3/GJ) iscompelling, as too is the opportunity to access record LNG prices through NWSullage (spare capacity). We estimate NPV value of A$0.25- 1.0/GJ (domgas-LNG),implying value upside to: BPT, STX, and NWE. The play is entering a catalystrich 12 months: Waitsia is going into first production; material resourceupgrades are expected, and there is proposed consolidation; which parallels theexperiences of Queensland CSM in the 2000s

STX – value creation from reserves growth and export pricing

At the current share price, we think the market is factoring in full value for developing Waylering and South Erregulla gas resources into a domestic market price of A$8/GJ. However, we think the market is not ascribing any value for likely resource upgrades, exploration success, or STX accessing export pricing (Project Haber Urea, or LNG) which could add A$0.18/shr risked. In our view the large, low-cost nature of the resource negates much of the development and funding risk. STX’s majority operated interest should see it control much of the decision making. Initiate with OW rating.

NWE – exciting resource but its minority interest limits value realisation

Our analysis of well completion reports andcontour mapping suggests Lockyer Deep resource is likely to be ~2.5tcf gross,necessitating development via either LNG or other high-margin exports. We valuea 21% equity interest in a 2.5tcf gross (375TJ/d) development at A$0.08/shrunrisked (A$0.05/shr risked) assuming a A$8/GJ realised gas price (LNG/Urea).For now we assume a 50% risk weighting as we question how much of this valuecan be captured from