A trading halt, particularly at the end of this pivotal SE1 exploration well, is a fork in the road moment for STX and its shareholders. If the well fails to achieve the hoped for objectives, this will likely require a considerable re-calibration of the Company's priorities in the Perth Basin (PB).
Conversely, were the post trading halt news to be positive, then the Company will finally have the key building blocks of value in place. If WE2 was significant for shareholders, then SE1 will likely - in the success case - be looked back on as the moment the Company really found its mojo.
The relatively short history of SE1 goes back to calendar Q4 2018 when STX acquired UIL Energy. The STX quote within the ASX announcement of the acquisition included, "......The Perth Basin continues to show signs of a heavily underexplored hydrocarbon system and the addition of UIL Energy's acreage will result in Strike being set to influence the Western Australian domestic gas market over the coming decades." The cost of the acquisition to the Company approximated $15m and the transaction was completed in advance of drilling WE2. It was pretty clear the Company was confident in their technical interpretation of the Basin. I recall at the time they copped a lot of criticism for the UIL acquisition. It was an all-in back yourself moment.
For STX shareholders the significance of whatever news lies ahead early next week cannot be overstated. The leverage to this news is so material because the Company owns 100% of this acreage. Moreover, this well is the southernmost testing of the prospective KHC and the success case will fundamentally alter and inform views around the whole PB.
Compared to relatively straightforward O&G investment theses of year's past, IMO there are multiple threshold issues that must be in place to risk your personal wealth into a story like STX in current times with a fundamentally different thematic set in place:
- potential for very large gas-in-place resource - operatorship (sine qua non to have the 'agency' to shape shareholder/value focused priorities) - credible commercial path(s) to market - decarbonisation plan (fundamentally complex when your source 'input' is carbon based) - technical competency - superior knowledge of the play - management ambition + bench depth - measured risk appetite - regular and detailed shareholder communication - BOD experience and connections - very clear strategy - strong government networks - supportive regulatory environment - community licence to operate
That seems like an exhaustive list. But losing money is never fun, so I've found it's this sort of discipline that IMO more often than not leads you into the best companies and investment opportunities. No guarantees but when you get it right, you can win big. My investment in this Company has steadily increased as I've got increasingly comfortable wit the above issues. That said, it's been a bumpy ride. However, after what has felt like a considerably long time the Company may be (or should I say hopefully is) on the cusp of foundational value.
I'll leave others to surmise on how the announcement next week may impact on short-term SP machinations. The fork in the road that positive news could deliver is the activity streams that will not only be prioritised, accelerated and/or activated but what these activities could mean for future value and SP accretion. Activities like:
- Haber (for obvious reasons there has been no value attribution to STX to date but the value implications are potentially enormous and demand a whole new discussion thread). A positive SE1 result will be the starter's gun for Haber and any future offtake announcement will be the signalling that the market needs to start pricing in what Haber could mean for STX. - Wagina and KHC resource potential in Strike's 100% North Perth Basin acreage (likely commitment to the Minjiny 3D). STX will have increasing technical leadership in the PB through sheer weight of data - WE Phase 2 now focused on Strike's 100% acreage (massive for STX shareholders) - acceleration of the Jurassic wet gas play in the Central Perth Basin. Waylering flow testing and prioritisation of Waylering development as potential fastest path to Company cash flow. This of itself is a game changer, or at least it could be if the upcoming flow test is a success. Conventional appraisal of this whole play right up to Ocean Hill - Mid-West geothermal power (Strike has continued to progress this initiative and with the Company potentially now having all the building blocks in place, can bring even more emphasis to geothermal) - CCS a new initiative with potential in North Perth Basin acreage
IMO success at SE1 will be the catalyst that brings a new market lens to all of the above. Importantly, most of the above activities are being progressed and every quarter will bring them closer to potential value recognition. In many ways, the Company is only now in a position of really getting in the headlights of larger institutional investors. Were the Company to move past one billion in value, large investors can build material stakes without necessarily becoming a proxy market-maker in the stock.
The one common feature in all of the above is Strike's unfettered ability to drive each work stream as operator and in some cases as 100% owner. It's the critical factor that is so necessary to be in control of your own destiny. This goes to individual investment decisions. The threshold of 'agency' is one of my most important investment considerations. There has been general agreement that STX has a brilliant strategy and potentially huge value upside but its been an all roads lead to SE conundrum. Do not succeed at SE, do not pass GO! If next week is directionally positive then it's finally game on and the Company can get its many pieces moving around the value board. While next week's announcement(s) may be long awaited good news for shareholders, IMO it's the next 20 announcements, collectively over coming months, that could really drive the next big leg up in value. IMO from a value perspective, we are still in the early innings of what this Company could be.
Btw I don't get to this forum much, however big thanks to @gimo211@invertedva@alexei ii@rperss99 for many informative posts. There seems to be a lot of banal 'noise' around various threads. Utilising 'ignore' is essential if you are time poor. IMO it really is disappointing that actions of the non-operated EP469 JV partner have created a win-lose scenario at SE. I have not been able to fully reconcile why this partner took on a tendentious position, thereby creating #gwcgate. IMO it can only be truly understood on behavioural grounds:
IMO hope is not a strategy. Hoping your JV partner fails is not a strategy. Being perpetually passive is not a strategy. This moribund corporate condition should have been called out by shareholders months ago. I have no doubt that in a classic narrative reconstruction the carnival barkers and water diviners will somehow construe potential STX success at SE1 as good for the EP469 partner. But this is wrong on multiple levels. The reality is this potential 'fork in the road' moment will be a 'fork to the wrong road' and JV partner shareholders will be faced with the consequences of historical questionable strategic choices. If STX succeeds at SE, this will fundamentally change STX's basin priorities (per above) . IMO the EP469 JV partner can then only be valued on WE Phase One alone (a capping of future value upside for possibly years out). There are no JV commitments beyond Phase One. When the reality of this starts to ferment, just wait for the shareholder opprobrium to kick-in. The degree of vitriol is likely to quickly reach white-hot levels as they watch the STX MC continue to rise. IMO it means little if SE success points to a few more Bcf in WE. This will not move the value dial if there is no development priority to commercialise this additional resource beyond Phase One.
The last time I looked the JV relationship appeared severely impaired.. I made a note to self to not come back here until the SE1 drill and re-visit how the PB landscape was evolving. IMO this impaired relationship is another factor why the SE1 results next week are a 'fork in the road' for all parties. If you place yourself in the STX CEO's shoes after all the friendly (or not so friendly) fire he took in the second half of last year, does anyone seriously think there will be lifeboats and bouquets handed out in the SE1 success case!? With regards to the #gwcgate cluster I'm reminded of this memorable clip (youtube 'Keating do you slowly'). For anyone contemplating how the future PB game of thrones may play out I'd recommend you have a look. Like it or not, behaviour matters and is rarely forgotten and is one of the primary drivers of value outcomes.
A couple of years back my sense was that the strategy of the two JV partners was so starkly different that I envisaged the day when STX would ultimately trade at a MC multiple of 6-8 times their EP469 partner. It's already at four times and the SE1 results are not in. IMO it's entirely plausible that this multiple could totally blow-out. The rationale is as follows and of course predicated on positive SE1 results next week. For one party the value-light has barely been shone onto what Haber and the other visionary Company initiatives could realise in future value. And to the other party as commented on by many, it has been very difficult to understand the strategy; behaviours have appeared irrational and its been increasingly hard to ascertain whether this party has the requisite agency to course-correct and positively impact value.
Why is the above even worth reflecting on? From my perspective, it's because shareholder value has many drivers. I see too often, that possibly well-intentioned but blinkered analysis leads to poor investment choices. I sincerely hope that anyone that chooses to invest in the PB has the opportunity to make a very good, maybe even a life changing return. But the likely consequence of acreage/operator asymmetry and variable management capability at play in the PB is that a rising tide (read a great Wagina and KHC resource if confirmed) will not float all boats.
GLTA shareholders and fingers crossed for next week.
Cheers
Adaltiora
STX Price at posting:
30.0¢ Sentiment: Buy Disclosure: Held
(20min delay)
