Event STX announced the outcomes of its ~6-month Strategic Review. While we would have preferred more concrete timelines for asset progression, the "near-term focus" signals movement is underway. Overall, the review outlined a solid indication of a path to future cashflow from STX’s strong asset base. Most notable was the positive shift in language around progressing the West Erregulla development with JV partner Hancock Energy—STX’s most valuable asset (~50% of our valuation). There was also a focus on progressing exploration/appraisal assets, potentially via farm-outs, with Ocean Hill flagged as a "fast-to-market" opportunity. Pleasingly, STX has already acted on non-core assets—exiting L7/EP437 after two unsuccessful wells and moving on from long-dated geothermal permits. Additionally, a reduced number of executives and ongoing focus on corporate overhead cost reduction. Notably there was an absence of specific Reserve and Resource numbers, given newly acquired seismic across the portfolio and major independent review underway. Impact As a snapshot; STX has indicated the West Erregulla development is back on track with progression indicated in the near-term, kept ongoing cashflow from Walyering (~$45m FCF p.a.), executing the South Erregulla gas peaking power development and pursuing potential value accretive upside, progressing Ocean Hill which looks highly promising for medium-term value creation with a potential farm-down to fund the drilling, and retained ownership of the extensive 100% operated exploration portfolio for longer-term upside. Given timing uncertainty, we however revise our SOTP valuation—pushing West Erregulla start-up to mid-CY28 (from mid-CY27), adjusting our risking (e.g. South Erregulla 10% risked, West Erregulla 25% risked), and decreasing exploration value to $50million due to delayed drilling (e.g. Kadathinni/Tathra-1 not drill-ready until end-CY26). The current share price is difficult to reconcile with STX’s asset portfolio value. Hancock’s ~$450m acquisition of 50% of West Erregulla via WGO in 2023 implies a valuation above STX’s market cap. The market seems to be discounting either West Erregulla entirely, or everything else in the portfolio. Today’s update reinforces STX’s intent to unlock value, starting with near-term West Erregulla progression. The company remains fundamentally well-positioned, with assets leveraged to WA’s forecast undersupplied domestic gas market and increasing demand for gas-fired power. We are of the view that it is only a matter of time that the market will recognize the intrinsic value of these assets that it is currently ascribing very little value to. Action We reaffirm our Buy recommendation on valuation grounds and revise our Price Target to $0.30/sh (from $0.36/sh), reflecting updated development timelines and risk weightings. With the stock at 5-year lows, STX appears to offer asymmetric upside.Upcoming catalysts, as listed below, should provide much-needed timing and funding clarity and could drive a near-term share price re-rating. Catalysts - West Erregulla timing clarity (near-term), updated Reserves/Resources (Q4CY25)
- Ocean Hill resource update (~Sept), potential farm-down/funding, drilling (~CY26)
- South Erregulla de-risking (currently on track 1Oct’26), expansion FID (~Q4CY25)
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