The Strike Project Haber announcement was a truly extraordinary announcement to kick-off 2021, a year that I'm confident will be a massive breakout year for STX. There has been a very positive reception to this announcement. It certainly confirms, for STX holders, that the Company's ambitions match the potential of the Permian Gas Fairway.
Going back over Beach and Strike announcements over the past 12 months points to the Permian Basin having the potential to be not only a large but an extremely valuable gas fairway for those companies best positioned to take advantage.
Its still early days, however, IMO I can see the fairway holding between 6-12 TCF. Adopting say a broad value range of $1B - $1.5B for every TCF, then its reasonable to conclude that a high-level fairway value range lies somewhere between $6b - $18B. It's too early to lock-in precise metrics, so a wide range is a good starting point. The consistent comments from fairway players, including Strike, that the resource extraction is likely to be low cost (on $/GJ basis) could ultimately shift Permian Gas Fairway valuation sentiments to high end of ranges.
Furthermore, we are still in the first innings of Permian Basin resource delineation. A comment from Matt Kay, CEO of Beach is very instructive to how big the Fairway could become. This comment attributed after Trieste - "we also completed the acquisition of the Trieste 3D seismic survey, which confirmed multi-TCF exploration potential in EP320". EP320 sits adjacent Strike's 100% owned Southern Erregulla permits which later this year will be covered by the extensive Minjiny 3D seismic program. After Minjiny and the current 6 well Greater Erregulla exploration/appraisal campaign, STX will have the largest data set of seismic and well control across the Permian Gas Fairway. And all this within 15-18 months from today including post Minjiny analysis and interpretation. The significance of this cannot be overstated - so much critical information, so near-term!
Beach, via the BPT/Mitsui JV and Strike via their 8 operated Greater Erregulla exploration permits are the two companies ideally positioned to reap outsized rewards from the Permian Gas Fairway opportunity. This is of course IMO, however, if you take the mid-point of the $6B - $18B above and simply divide by two, you can quickly circumference what over time could be for STX and its shareholders. The prize is potentially very, very big.
Opportunity is one thing; good execution and a requisite dollop of good fortune is another. In an earlier post I noted the areas you needed high conviction on, as an investor, to see Strike realise its potential:
The Haber announcement goes a long way to answering questions around whether there will be a market for PB gas, especially SE (note the Indicative Project delivery timeline reference to South Erregulla on the Haber presentation). Strike clearly holds deep conviction that the gas can be extracted at a very low cost. The Company presentations have consistently pointed to what this could mean for Strike's competitive position in the current WA domestic market. Haber involves building a substantial increment to market demand. Furthermore, it's a truly brilliant development concept and cognisant of the changing sentiments around fossil fuels. Separate to Haber there was APA's recent announcement around forming a gas grid with new Northern Goldfield interconnected pipeline. We can see a picture emerging of the low cost Permian Gas Fairway becoming the dominant onshore gas province supplying potentially huge quantities of gas.
And we shouldn't forget the NWS shortfall - one policy change from the WA Gov't and that could open up. With Ironbark failing , questionable economics around new offshore equity gas and the fear of stranded assets and fiduciary risk around Boards signing off on multi-billion dollar expenditures nothing should be ruled in or out as to how the likes of NWS will source competitive gas supply in the future.
While WE3 in one respect was obviously a frustration for all concerned, the SP has moved north since then indicative of the references to high gas charge and what this could mean for the northern part of WE. Nonetheless, I would expect STX management will be looking to WE4 for a good result, both in execution and flow rates. We should all remain mindful that this is pioneering stuff, the rewards are very high and setbacks will occur.
Acknowledging the above it's hard to fathom that there appears to be a small cohort of posters seemingly intent on running a campaign against the Company. I don't see this directly as I only come to HC every 2-3 weeks for a catch-up and have a healthy regard for the ignore button. But you still see the cross-current of responses. I would group the cynicism and antagonism as either in the low content or sour grapes buckets. I suspect it's low value, soon forgotten and quickly consigned to the dustbin of intellectual and investment irrelevance.
As an aside, I sincerely wish the EP469 JV partner shareholders success with their investment. But I would caution that (to me) having a non-operated portion of a small piece of a large fairway is not a straightforward investment home run. Myself and quite a few others on this forum pointed to a 'structural discount' which does appear to be manifesting itself in relative share price performance. I do recall there were a couple of posters making noise around comparative value. I don't come to HC enough but hopefully these posters have recanted from their earlier positions. IMO if you truly believe in the Permian Gas Fairway investment thesis, then STX has the requisite attributes (and there are a few Company must have's) to be the stand-out investment opportunity in this play. Nonetheless, as always best to all.
From a purely investment perspective, IMO having exposure to the Permian Gas Fairway could be one of the most lucrative gas investments on the ASX in the next 24 months. Going back to June 2019, an STX investment has already been well rewarded. To me I see the best is still ahead. Beach and Strike have the greatest exposure to this opportunity but Strike is virtually a pure play in the Basin. By being operator in all 8 permits it controls its destiny, the management team and BOD have deep competence and excellent networks and Haber is absolute confirmation that the Company's ambition and contemporary awareness matches the huge potential of the Permian Gas Fairway.
Exciting times to be a shareholder.
Best for 2021 and GLTA.
Adaltiora
STX Price at posting:
34.0¢ Sentiment: Buy Disclosure: Held
(20min delay)