With activities at WE4 getting closer to the target zone, this...

With activities at WE4 getting closer to the target zone, this weekend feels like the calm before the storm. The next few weeks look likely to be a composite of coring, drilling, wirelines, analysis, flow testing and announcements.

It does seem quite a while ago we had the 'staggering' Kingia announcement. A successful WE4 as a long-awaited follow-up to WE2 is probably the critical confirmation needed to know we are delineating a very material Perth Basin resource, the parameters and boundaries of which STX is still in the early stages of defining.

If all goes well it's reasonable to envisage a WE4 flow test later in April and WE5 to be drilled and completed in May/June. The excitement for me is what a successful WE4/WE5 means for Strike's 100% owned permits across Greater Erregulla. And with SE1 planned for Q4 calendar 2021, its only 6 months away.

With an early P50 estimate of 1.6Tcf, IMO SE1 could have a $1/share impact on the STX share price. That is truly extraordinary - that one onshore well success could point towards $1.5B - $2.0B of future value. For example, if STX is trading at say $0.50/share at the start of Q4, upon a successful SE1 campaign, it surely has the embedded potential to move up towards $1.50/share. This is simple maths applying a modest metric (see AWE sale as a guide). Add in future potential from the Minjiny 3D seismic across a significant portion of the Permian Gas Fairway, Strike's Southern Perth Basin assets including Walyering and the newly acquired Perth Basin block, we have multiple potential avenues for future value accretion.

What has been really exciting as a shareholder is to see the Company's ambition to become a relevant and material participant in the future of the WA and broader Australian economy with initiatives such as Haber. My sense is that Haber is just the first piece of an emerging and ambitious strategy to capitalise on the extraordinary opportunity the Company has to leverage off both a potentially abundant and low cost Permian Basin gas resource. Furthermore, it's clear that STX has acknowledged the challenging macro headwinds around energy and is determined to be a facilitator of downstream industries which become part of the solution to a new way forward.

The reference to Rystad Energy's 10Tcf gas resource prediction for the Perth Basin, in the recent Company presentation, seemed to fly under the radar without much fanfare. But do the maths on what STX could be worth if the Company can end up having 3-4 Tcf of that total.

If only we could jump forward to Q4 now. Bring on Waylering, bring on SE1, bring on Minjiny. All of this becomes a near-term opportunity/reality if WE4/WE5 delivers to expectations. I have a printout of Slide 6 of the STX March Euroz presentation on my desk. Rexsh and others have referenced this in detail, however, Strike's modelling confidence in SE1 is very connected to WE2/4/5 so it will be increasingly plausible to join the dots if WE2/4/5 results (and analysis) technically align with current modelling. It's a massive, valuable and proprietary IP data set that STX is building across the basin.

So, what's at stake for both of the EP469 JV partners if WE4 delivers on pre-drill expectations?

For STX a successful WE4 is a critical next step in proving up the Permian Gas Fairway. IMO I would expect success at WE4 and WE5 will be accretive to the share price. Part of this will be the expectation of resource conversion. However, with Waylering, SE1 and Minjiny literally months away, investor focus will start to join the 'what could be' dots for STX across their Greater Erregulla permits. Noting the share price today, IMO a five-times increase could be possible in the next 12-15 months in the Greater Erregulla success case. Beyond that , the share price would likely follow Strike's journey to an ultimate Permian Gas Fairway resource together with additional (possibly very material) upside from new and exciting downstream initiatives like Haber. It's hard to keep a lid on what could be for STX, especially with the ambitious and determined leadership of the management team and experienced and well-connected BOD.

For Strike's EP469 JV partner, hopefully there is also upside from the current SP. I do find it hard to calculate what this upside could be. The reason for hesitancy here is the misalignment of the JV partners, with STX in 3-4 months turning its attention to their 100% owned permits. For example, if SE1 comes in (and COS is already stated at >50%) then any Phase 2 on the third-party processing is likely to be 100% filled by gas from STX 100% owned permits.

It's too risky to equate any value in a DCF valuation for Strike's JV partner in excess of Phase One gas (40Tcf/day). I understand that this makes for frustrating reading for those who have been waiting and waiting for SP movements and those who may even think/hope that possible SP accretion could be imminent on say WE4 success. But you simply can't bank on what the operator (STX) will do when you are NOT the operator. Moreover, in a DCF calculation I would place zero on any terminal value for the same reasons as above. IMO maybe its possible for investors to build a case for two-times return. The JV misalignment risks are simply too high in my opinion for the limited upside that may be available. A lot of the resource beyond that set aside for Phase One could be stranded for years. STX will naturally prioritise activities away from WE to SE/GE. It's not malice, it's simply economics and what STX shareholders would demand.

From an investment perspective, it really is a shame that the merger didn't happen when it was on the table. Making money is never easy. You would be right to be totally frustrated and upset if STX literally hits the jackpot in the Greater Erregulla in the next 9-10 months and you backed the other Perth Basin horse and ended up with a nominal 40Tj/day back water story. That said, the horses are still in the PB parade ring so to speak, so with STX at a relatively modest market cap of $550m it's not too late to switch.

On a related subject, I turned back on all my 'ignores' over the past week just to see whether the antipathy and misinformation from some posters had subsided. What a punish, getting through so many low content posts. I simply don't get where all the bile comes from. We all make investment choices and are accountable for those choices. Why would you come on here day in, day out and bag a stock and the management of a Company you don't even own!? It doesn't pass the pub test of either being rationale or projecting any reasonable sense of personal accountability. I truly wish both sets of stockholders the best of luck. But if we really want to ''compare the pair'' well my summary would be as follows.

One JV party - the operator - has a bold, ambitious strategy to delineate a huge Perth Basin resource and work with multiple industry and government parties to create a resilient, relevant, dynamic and highly valuable company of the future. So, it's totally reasonable to have expectations of material value upside in the success case. The other JV party - non operator in one PB permit - appears not to have a coherent strategy, reflected IMO in an increasingly frustrated and disillusioned investor base. Hope is not a strategy; criticism is not a strategy; regret is not a strategy. The investors surely deserve much better.

After ''comparing the pair'' my ignores are all back on.

Here's hoping the next few weeks are truly the foundation for strong future investment returns. Congrats again to STX management, who despite all the ups and downs, have maintained discipline, direction and determination and positioned the Company to be on the verge of something very, very big.

GLTA!!!

Cheers

Adaltiora