More ladders than snakes, page-56

I see a lot of negativity about the recent strategy by Strike to move into geothermal energy business. It triggered some thoughts which I want to share with the crowd. Before doing so, I need to state that I am by far not an energy professional and do not have deep knowledge in geothermal technics nor business. However, I worked many years as an innovation & strategy director in a global company, thus I look at the move from an innovation and growth angle.

For me, the move into geothermal sector - at low risk & low cost - was another genius move from Strike management. Here is why:

• Diversification & risk management: Strike discovered a world class onshore gas resource at WE with top notch business fundamentals. There is no doubt about that. However, it is just gas and even though I believe in Strike's forecast regarding a shortening gas market in Australia and thus a brilliant business outlook, it is risky to focus solely on only one business model that is much in discussion due to global warming and zero emission plans. There can be many unpredictable events that endanger the O&G business. Same is true for any business out there, but the likelyhood is higher when the business is not in favor of social, environmental and political trends. Thus, diversification is key and project Haber and especially the geothermal move is great from that perspective. It is great as it makes Strike investible for the broader mass of investors, funds and will help propel also the O&G business as reputation matters when you need to authorizations to drill holes, build infrastructure, etc.
• Public relations & company's image: Strike is doing a lot to improve the company's image like the emphasis on Western Australian management, the focus on Australia's economy with project Haber to make it less dependant on imports and recently the move in green energy. I understand that many that invested because of pure O&G fundamentals might not like this move, especially as geothermal did not succeed in the past in Australia, but besides the value-add to Strike's image, there are 2 reasons that make me very confident about this move:

1. Synergies & hypothetical business case: Part of the strategy is to use already drilled holes for geothermal use, thus either duster holes or commercial wells that reach the end of its lifecycle. Main business of Strike is to explore gas, drill wells and do all the upstream activities for which most of investors initially bought in. So if a well is a duster (part of the game), it would be 100% sunk costs for any pure O&G company. In Strike's situation, it might be the initial investment to start the geothermal game. Let's do a hypothetical business case with ballpark numbers: let's say the drilling costs per well are 10mAUD and the income from geothermal energy sales are 1mAUD/year, company overheads 0.5mAUD. In this very simplified example it would take 20 years to break-even with one well and it is easy to see why so many pure geothermal businesses failed in the past. As said, just ballpark numbers, but look at Strikes combined business model: 10mAUD would be written off, additional company overheads are marginal and thus they immediately make profit and after roughly 10-15 years, they would have regained the sunk costs of a duster or can expand the lifetime of a production well. I know this is far too simplified, but the business mechanism is exactly like that. Plus:
2. Hype cycle & technical advance: As an innovation manager you know Gartner's hype cycle quite well and I really like the concept as it repeats every time again and again looking at technological innovations. It basically says that there is a typical pattern with all innovations that most of them are hyped in the beginning, are not sustainable or profitable, but once the dust settles and after a few rounds of improvements, many of those innovations start to grow into sustainable businesses that disrupt the old markets. And so on. To cut it short, for me there is no prove that geothermal won't work just looking back. I expect technical improvements over the years and in combination with the business synergies lined out above, I think that Strike's management know quite qell what they are doing here. For me this move is another bold, out of the box move that makes the board stand out among any other peers that I am aware of. The visionary force of Strike is outstanding IMO.

I mentioned it in one of my last posts that I am here since 2005 and do not post frequently. It is funny to read all the negativity lately, I can't really understand why, can only speculate that there are some hurt egos connected. It might be again the perfect contra-indicator that another increase in share price is happening soon. For me, it was the perfect timing to do the CR. The shareprice spiked and needed to cool down anyways, now we are at 33c and even if we go to 30c again, we have at least 75mAUD more equity that will help to grow the business and make the vision reality. It was not too long ago that 30c was considered by myself already a very, very high shareprice. I am more than happy with how everything worked out so far. Especially, as the flow test is likely to hit a all-time record and then the next leg might come. This board is just awesome.

All the best & thanks for all the great contributions (you know who you are)!