Event Strike announced successful results from the Walyering-7 (W-7) exploration well at its 100%-owned producing Walyering field. The well discovered 22m of net pay with 21m in the A-sand reservoir that is contributing to most of the current production from the field through the W-5 well (which hit 51m total net pay with 14m in the A-sand, W-7 intersecting similar reservoir properties). Additional upside from B- and C-sand reservoirs could be identified through upcoming flow testing operations (unable to be sampled). Impact It was important for the market to see renewed drilling success, following the disappointing SE-2 and SE-3 flow test results in February which resulted in a large sell-off and halving of the STX market capitalisation, an apparent overreaction given the lost resources accounted for ~30% of the STX total resource position. We believe the W-7 result looks to add material 2P Reserves (i.e. ~20-30 PJ) based on the static drilling results, post a successful flow test planned through the Walyering facility (which will be monetised) in the next few weeks and subsequent Reserves update. The additional Reserves and production potential will be able to be commercialized through to the DBNGP (with a greater customer base than the Parmelia Pipeline) from ~end-CY24, which could result in additional ~$25m FCF p.a. (above current ~$65m). Increased organic cashflows (and a re-determined debt facility) will allow STX to execute on its forward drilling (adding new Reserves and Resources) and development program (adding new production from South Erregulla and West Erregulla in the medium term). Action We maintain our Buy recommendation and Price Target of $0.39/sh. We see deep value at the current enterprise value (~$550m) noting consensus DCF valuation of Walyering (~$300m) and the look-through value that Hancock paid to acquire Warrego and 50% of West Erregulla (~$450m), with no apparent value attributed by the market for STX’s other assets (South Erregulla, Ocean Hill, exploration) and the potential material value creation from newsflow outlined below. Catalysts (all within ~next two quarters) - Walyering-7 flow test, targeting 15+MMscf/d (this month) and reserves update
- WA Domestic Gas Policy update - potential LNG export uplift (13 June Tabling date)
- South Erregulla (STX 100%) reserves update and indicative development plan (~this month), we speculate a gas-peaking development (incr. gas look-through pricing)
- West Erregulla (STX 50%) development environmental approvals, production license award, 100 PJ Wesfarmers GSA re-pricing (~end June), FID (~Q3CY24)
- Erregulla Deep-1 exploration well (West Erregulla EP 469 permit, STX 50%), targeting 278 PJ gross 2U (this month)
- Booth-1 exploration well (L7 permit, STX 25%) targeting 279 Bcf gross 2U (end-July)
- Ocean Hill 3D seismic results - current 300PJ 2C Contingent Resource targeting ~replication of Walyering (i.e. $300+m value)
- Kadathinni 2D results - potential TCF-scale opportunities in frontier Permian Trend
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