It ain't pleasant that's for sure and there is certainly going to be some longer term flow on effect if SE doesn't have enough reserve to justify its own development. But let's pause for a minute and take stock...
(1) SE Phase 1 was always slated for domestic sale to AGL and Worsley Alumina. So gas policy change wouldn't have made any difference there, but it will certainly make a difference with SE Phase 2 (which is almost certainly not going to happen now barring some miraculous intervention work with SE2/3). Where a policy change will benefit us the most is OH because it is totally uncontracted. If the policy does change and we successfully appraise OH, then I am sure STX can sign a export sale contract to fund and underpin its development. If SE Phase 1 doesn't go ahead, we won't need the 80mn Macca facility which was slated for SE development.
The GSA with AGL and Worsley Alumina are contingent upon SE FID. So STX doesn't have any liability for non-delivery.
(2) Perhaps so. STX's valuation has taken a hit but it is far from worthless. If any party wants to takeover what is still a decent business (largest landholding in the PB with large reserve and resource base, operatorship control, a good cashflow producer in Walyering with great margins, a prospective analogous play at OH, with some great undrilled prospects in WE, Arrino and Kadathinni), they will still need to pay a premium. If not, then STX will just carry on business as usual, albeit at a slower growth projection.
(3) STX still has net 2P of 380PJ and 0.55 mmBOe. As per point 1, we won't need the 80mn Macca SE facility if SE phase 1 isn't going ahead. We are fully funded for the remaining 4 wells this year. If and when we can successfully appraise other prospect and need to develop them, we should have sufficient strength in the balance sheet to secure a loan.
That being said, let's give the company some time to process the data and gain a better understanding of SE before we jump to any conclusion about its future. At this juncture, I do agree it's not looking great as a standalone development. SE1 did flow at 78mmCF/d. If they have confidence it can sustain that flow rate for at least 3 years, then SE Phase 1 may still go ahead because STX has the option down the road to feed its share of WE gas into the processing plant if and when SE1 production starts to decline. Even with putting SE1 on extended production testing, it is a pretty risky proposition to have just 1 production well feeding into a processing plant.
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STX Price at posting:
21.5¢ Sentiment: Buy Disclosure: Held
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