Looking forward to Q3

It feels like we are back at Q4 last year when the bottom-hole pressure at Jaws was steadily being lowered.

However, with progress in other assets over the past year, particularly with WE, STX does seem to be in a much stronger position albeit not currently reflected in the SP.

With so much leverage to results in Q3 2019, took a moment to compare where we are now to a year ago - for better or worse:

SP - worse

Shares on issue ~1.4 billion from 1.1 billion - worse

Market cap - neutral to slightly worse

Optionality - definitely better

Confidence levels - sentiment mixed

Back in March 2018 when STX farmed-in to WE the rationale was to build resilience in the Company's asset portfolio through diversification into potentially transformative gas supplies in both eastern and western Australia.

This has essentially been done at a cost of approx. $30m and 300 million share dilution. Although the SP has basically stagnated and then retreated following the UIL acquisition, I actually consider we are better placed today than back in March 2018.

If we had rode shotgun on Jaws alone, run into the January 1 problem which cost six months and a bunch of $$$'s, had little news flow then the R&D hits we may have run aground (ie out of cash).

We are now probably 60-90 days away from one piece of news flow which could totally transform the trajectory of the Company and the SP. I'm also very relieved to see that the last capital raise included some w/c to re-load prospects which are the lifeblood of explorers.

There has been some commentary around future value in the upside case. Waitsia is a great proxy for WE (recall reading numbers around $500m -> $600m) and then there is all the potential upside if WE goes well from the UIL acquisition. IMO this could be a medium-term multiplier of WE because of the prospect potential which seismic - which we now have the funds for - can better define.

As to Jaws, I'd be very surprised if we threw lots of money at multiple wells. These large plays - refer Queensland CSG - have historically at exploration stage been valued against metrics like 3P + 2C. If flow testing gets Jaws past commercial thresholds - a possible calendar Q3 scenario - and these flows were sustained, the actual 2P reserve quantity would be limited to around Jaws drainage area (i think?). Therefore I'd expect the Company to move quickly, maybe with seismic, to build greater confidence in PEL 96 and beyond. There may be Jaws 2, or seismic, or even farm-outs to accelerate additional resource/reserve delineation. Regardless, a relatively modest amount of capital could drive material value accretion over 12-18 months. I'm sure STX Board/management have given the 'what to do in success case' plenty of thought. As to valuation metrics for 3P + 2C this varies but in the past I've seen a range from $0.20 -> $0.50/gj dependent on field attributes. Others may have more current views/comments on this and preferred metrics do change??? IMO the numbers - if you do the maths, apply your preferred metrics and include some but not all of Cooper resource - could get very large but it would take time to build towards this sort of in-ground resource validation that share market investors, or industry players/acquirers might pay for. However, the optionality could be hard to resist. It's such a large prospective resource.

In any definitive success case - Jaws/WE - the impact of recent dilution is that there are a few more stairs in the value staircase which does cap the total upside. That said, IMO if either WE or Jaws are deemed commercial there is medium-term see through potential for either asset grouping [WE+UIL] or [Southern Cooper] up to a billion (happy to be corrected here). Even with 1.4 billion shares on issue (and possibly more for future funding) there remains huge upside potential.

It's been a bumpy ride over the last 12 months and as a long-term holder at times very frustrating but hopefully the tide is about to turn. We just need one shoe to drop and then it could get very interesting!!

DYOR and GLTA

Adaltiora