Looking forward to 2020

There is so much to look forward to next year. The fundamental difference for STX between today and 12 months ago is the Company now has a great foundation to build from. From the binary reality of two high risk/reward projects, we've moved way beyond the fear this could all end in tears.

While there is some natural concern around current valuation (SP) it's a high class problem and a problem every shareholder would have taken back in June this year. I find it increasingly difficult to pick short-term price movements, trends etc so prefer to focus on medium-term value and let the market/SP get there in its our mercurial and imperfect way.

For those shareholders that feel we are not being fairly valued, take a moment to look say 12 months out (to end 2020). What events are likely to have occurred that cumulatively would have moved the value/SP dial. There's plenty.....

Jaws - any outcome still seems on the table at the moment. The next 2/3 months likely to give a clearer picture. What is now abundantly clear here is that Jaws really is pioneering stuff and the Company was very smart in hindsight to add a second string to the STX bow - the Perth Basin!

Southern Perth Basin - Waylering 3D seismic has commenced. Likely to get some news here Q1 calendar 2020. Ocean Hill preparations for seismic. Additional options in other permits.

Northern Perth Basin - this really is game on now with $30m in the bank. Look out 12 months we've probably drilled WE3/WE4 and further proved out West Erregulla with much greater visibility to the Wagina and Highcliff - likely completions and flow tests in each. Be no surprise for the WE resource to move above 1.5Tcf. In tandem with this appraisal there should be steady progress towards Phase One FID.

However, the potential real PB-biggie over the next 12 months is the 3D seismic. Firstly, there's the Beach/Mitsui Trieste 3D survey which is right on the border with STX 100% (ex-UIL) permits EPA82 and EPA98. STX is very leveraged to the outcome of this survey. Then there is all the proposed 3D seismic planned for both the EP469 JV areas and the STX 100% areas. This will take time - land access/prep/approvals/tenders/execution - and I would expect this is likely to kick off in H1 calendar 2020 and probably involve 2/3 separate phases across say 12-18 month period. It's a massive area in the Dandaragan Trough they are proposing to conduct 3D seismic across.

Why is the 3D seismic the potential biggie - the Company appears to have strong internal confidence in their high amplitude ->> porous hydrocarbon charged sands modelling. Accordingly, post interpretation of each phase of the seismic they should have a really good sense of any high probability conventional targets in the 'fairway' - ie Dandaragan Trough. And we know how the last high confidence target played out - close to 1.5Tcf - BOOM!! If the seismic reveals multiple prospects, we could be looking at high impact exploration drilling in 2021/2022. That could be BOOM/BOOM/BOOM!!!

So for shareholders, IMO over the next 12 months I envisage a natural split into two camps. The Kardashian camp who wants it all today, instantaneous full value or I'm gone, or demand any sort of takeover or simply choose to be permanently frustrated and unhappy. Alternatively, there is likely to be a medium term camp who will be happy to be part of a ride (finally) with a firm value floor and let SN and the team diligently appraise both EP469 and the 100% owned permits and test whether there could be a resource more like 5Tcf and the massive rewards that could bring. I recall from one of the strategy decks, SN refers to this as define, test and aggregate.

I'm in the latter camp and am very relaxed about the market options for the gas. From how I see the market if you have up to 1Tcf you are actively looking for market access/options but if you start heading towards 5Tcf then all the options find you. Just saying.....

As to the relative merits of STX v WGO, I guess beauty is in the eye of the beholder. A merger wouldn't surprise me although social issues (ego's) often get in the way. At the moment a nil-premium merger (the most simplest form of transaction) would likely see WGO shareholders getting 1 STX share for every 2 WGO shares held. Lots of opinions here but I see the value gap could widen substantially next year (moving from 2:1 to 3:1). That assertion has nothing to do with Jaws (still a big unknown) rather the reality that STX is so well positioned to capitalise on the Dandaragan Trough with all their 100% acreage. There's massive leverage here! The next big catalyst that could shift the comparative value is the Trieste 3D seismic. Nearly all the leverage from positive post Trieste survey analysis would accrue to STX (not WGO).

Furthermore, STX are fully funded and WGO will need to go back to their shareholders, likely H1 calendar 2020, for a possible big lick of capital. The WGO Dec Quarterly Report (likely to be released late Jan) will reveal all regarding future capital requirements. We've seen first hand over recent weeks how a potential capital raise can destabilise a register, even a Company with great forward prospects. The WGO key shareholders made a brilliant move to negotiate the STX farm-in. It wouldn't surprise if they supported a merger and rode on STX's back again right down the target PB gas fairway. Smart Scots usually find the path to good commercial outcomes.

So in summary, looking out 12 months IMO it's a fabulous time to be an STX holder. I'm certainly expecting big things and substantial value accretion. If, as some have suggested, a takeover for STX came out of left field it could still be a great second prize especially with the Board very determined not to entertain any sub-optimal outcome. But I'd rather back SN and the team to deliver more value in the medium-term than any short-term one-off sugar hit from an opportunistic takeover.

GLTA

Adaltiora