Fox in the Hen House

Good to get away for a few days. Catching up on 'events' over the past few weeks, the very impressive Quarterly and a bunch of posts.

For anyone who needed any final convincing, challenges within the EP469 JV were publicly exposed for all to see, via conflicting statements around the WE4 flow test. This reminded me of a discussion with the two primary shareholders of the EP469 JV partner nearly a couple of years back when I held both stocks. I mainly listened but was taken aback by the bitterness and envy on display. It was my first encounter with these folks. With the WE discovery and the immediate and literally overnight wealth transformation I did expect their demeanor would be like the cat(s) who got the cream. But it came across (to me) more like deep bitterness, conveying something like 'The Big Steal', dismissive of STX and SE in particular. IMO they appeared unable to reconcile with what they had lost - operatorship and 50% of a now valuable permit, instead of what they had gained - a life changing amount of money. My investment antennae went up and I sold out of the JV partner the next day.

What soon became readily apparent was that one poster was commenting in a manner that, to me, sounded exactly like what I heard that day. Each to their own but respectfully placed on ignore.

The WE4 flow test public announcements have been discussed extensively. From a purely technical perspective, you would generally side with the operating party, STX, who have consistently displayed high technical competence, in fact technical leadership across the recent PB KHC discoveries. This leadership is a huge part of the operating IP of the Company. They have consistently demonstrated deep competence in technical understanding of the PB, right from their original thesis that resulted in the successful drilling of WE2. However, there were more obvious clues as to why STX would be proved correct. Catching up on the STX forum I see posters like @invertedva @gimo211 @rperss99 @mir911 @alexei ii and others were bombarded with a 'ding-dong the SE witch is dead' campaign. The whole issue IMO has been a smokescreen to try and discredit the prospectivity of STX's massive 100% owned acreage. The same envy and bitterness I heard in-person a couple of years back, manifested once again on the STX forum, It's like a broken record, a dummy spit that never ends. All this done, as noted by others, with a growing awareness that a third party was creeping up the register.

The short-term implications of the public ** for STX have been an unavoidable, although thankfully temporary handbrake on the Company's SP appreciation. Frustrating - of course - but temporary. However, as the Quarterly points towards, none of this has slowed down the tremendous momentum the Company has. Haber is moving very fast. Geotherm is emerging as a game-changer all on its own.

All stakeholders can now be in no doubt as to how turgid it has been for STX to operate what typically would and should have been a vanilla JV agreement. No surprises then to see STX build a stake in the EP469 JV partner. IMO STX acquiring an 8% stake will be the catalyst that emancipates all shareholders (from both EP469 JV partners) from this inevitable climax of unfortunate behaviours sourced back to 'The Big Steal'. Finally, a shareholder has arrived on the JV partner's register that will bring accountability to BOD/management decisions. A burr in the saddle, a fox in the hen house!! The delicious irony is that STX's arrival on the register created ten times more value for EP469 shareholders in a week, than the JV partner made on their own in the previous 12 months!

I expect the constant pressure that STX will bring to bear will hasten the corporate end game for our EP469 JV partner. The market is already pricing this in, although I don't expect any benevolence from STX. The chances of STX overpaying for a company (read asset) they already have considerable leverage over. Zero chance!!

An option for STX is to put WE on 'simmer' after Phase One.

With the enormous scope of STX activities fully reported to the market, IMO it's now abundantly clear that the STX team have high confidence that STX's 100% acreage across Greater Erregulla is very prospective and successful exploration and delineation will likely ensue. Based on this confidence, the Company is now foot-to-the-floor with huge project undertakings. The calibre of new hires is testament to this confidence. As highlighted by a few posters yesterday, the scope and rapid progress of activities is extraordinary.

STX focusing on their 100% acreage is a natural consequence of the massive prospective resource upside and the EP469 JV challenges. It's the path of rapid unimpeded progress. If what is posted every day by some non-holders here is a proxy for JV discourse, any sane party on the receiving end would do just that. I'd rather swallow a bucket of nails for breakfast than have to endure that bitterness, antagonism and obfuscation on a daily basis.

Were the SE1 well to be a success, outside of WE Phase One, STX is likely to focus their delineation and future gas extraction from their 100% owned acreage (ie scaling up production - read Phase Two - all from 100% STX acreage). Surely the alarm bells must be going off for EP469 JV partner shareholders. Worst case scenario becomes a reality and no participation for them in Phase Two. WE - ex Phase One - becomes a stranded asset on simmer for 10+ years. Time to re-cut the valuation models.

Implications for EP469 JV partner value - Phase One say $250m - $300m, less $50m for corp costs over ten years and $50m for 'net-zero' initiatives. Assume zero for Ibiza assets. IMO you end up with $150m - $250m (divide by 1.25B shares). I recall one poster banged on about the Alcoa contract possibly being more valuable than the CSBP contract as a basis for valuation comparison. How patently narrow and disingenuous. No acknowledgement of PB context, value of operatorship, PB permit asymmetry, STX prospective acreage, technical competence, STX multiple initiatives, BOD credentials/networks, importance of a net-zero strategy. Like implying a chess game where Player One with only a King and a pawn was in a stronger position than Player Two with a King, Queen, two rooks, bishop, knight and pawns. Outstanding analysis!!

What I've never understood re our EP469 JV partner's HC stock forum is why the material risks, the important issues, the poor behaviours (real risks to investment returns) are not acknowledged, called out or debated. Maybe things have changed, as I haven't been there for months. If I was a shareholder I'd be raising/posting:

- how is the Company addressing the asymmetry risk of being a non-operator in one PB permit, while the operator of this permit has nine PB prospective permits and operator in all of them. The asymmetry that has now been in place for three years and still no meaningful strategic response
- if Strike's SE1 well succeeds what is the second egress to create value if STX parks the WE bus up (ie only Phase One) and transfers operating focus to their 100% acreage
- what are the likely costs of implementing a 'net-zero' strategy
- what attempts are being made to improve EP469 JV relationship and why with the PB asymmetry and non-operator risk profile did the BOD allow this relationship to deteriorate, with the huge resultant risks to shareholder value
- will there be an internal investigation and ultimate accountability for #gwcgate
- how will the Company deal with virtually zero news flow over the next 18 months (cash flow negative companies rely on positive news flow to attract/retain investor attention)
- is the Company trying to engineer a takeover to protect/create shareholder value

The last four (4) points above should be directed to the Chairman. This is where ultimate accountability resides. IMO recent announcements point to technical incompetence and a failure of governance. If investors lose confidence in a company's leadership and governance, is there anything left? There will now be a microscope applied to every decision of the BOD going forward. It's not just value on the line. Reputations too!

Maybe its impossible for rational and intelligent EP469 JV partner shareholders on HC to have a voice, drowned out by the STX hating crew that are obsessed with criticizing every single STX company initiative and milestones, rather than focusing on their own house. A time to reflect on that old saying, 'we have met the enemy and it us us.'

IMO the only value accretive pathway for our EP469 JV shareholders is a takeover. I'm ambivalent as to who/how other than, as an STX shareholder, we need this value barnacle gone (or cleansed) for ourselves just as much as EP469 JV partner shareholders are increasingly desperate for an accretive opportunity to sell out. There are many ways these things can play out. But with its 8% shareholding, dominant position in the JV (operator) and huge adjacent acreage, STX will have significant leverage in any process. And of course, the source of gas for Phase Two is totally in the hands of the operator (STX) so at the moment, all someone would be buying is one gas contract.

It then follows that the risks for JV partner shareholders are that potential parties, interested in some form of corporate activity, may choose to wait until SE1 is drilled. That is not a risk, IMO. that I expect our EP469 JV partner shareholders would want to carry. Being on the side lines of the SE1 drill, would feel like being sucked over a value-waterfall backwards. They should never be put in this unenviable position. The risk of value loss here could be very material. With SE1 spudding in October the clock is already ticking. Surely the BOD will do everything to protect their shareholders from this risk! This is not a time to be asleep at the wheel - in bed when others are awake.

The last few weeks have highlighted that value is not just about a discovered resource. A great discovery is a pre-requisite for value - of course. But a great discovery is only the first step on the ladder of value creation. Material and lasting value creation is a matrix of so many more complicated factors and layers like basin context, operatorship, permit asymmetry, technical competence, BOD strength, having a vision, having options but most of all the importance of the 'human condition' and how what may look like a rational investment decision from sophisticated or retail investors, can be sabotaged on the rocks of ego, bitterness, regret and other value destructive emotions.

To be absolutely clear, I'm not down on our EP469 JV partner's shareholders. I deeply empathise with the value trap they have found themselves in. But I have only disdain for how IMO they have been and continue to be treated and it is here my antipathy is high. The risks of the continued indulgence of egos, corporate missteps and a false belief in a risk-free 'nothing to see here with SE' next few months could lead to material negative value outcomes. Whether STX, or another party, IMO a change of ownership (or new leadership) is the only way out of this value trap. I hope change comes swiftly and value found for all.

And then for STX, with this distraction behind us, what a breath of fresh air, for shareholders to positively re-engage with the Company's transformative activities in the PB, as so comprehensively outlined in yesterday's Quarterly Report, without the constant annoyance and carping every step of the way from embittered non-holders. To see a great investment narrative play out and the opportunity to make outsized returns. The rewards for investing in a company that is building something potentially of very high value. Why we are all here!!

As always GLTA shareholders. Looking forward to WE5 flow test and the increasing news flow on multiple activity fronts as the Company executes on its big ambition.

Cheers


Adaltiora