On the basis that the Permian Gas Fairway already hosts +3TCF, it's entirely plausible that the ultimate resource size could exceed 10TCF. That said I agree its important at this stage to manage any personal exuberance and expectations. Nonetheless, my sense is we could be surprised on the upside over the next 18 months as STX drill a bunch of wells and undertake the extensive Minjiny seismic program.
As to potential value I'm entirely comfortable with metrics - for operated positions - according +$1/GJ. It's all crystal balling for now, however, the early indications are PB gas could be very low cost. Therefore, any comparisons to other Australian gas fields can be misleading. I'll take conventional (like the PB) over unconventional every day of the week. Its an apples vs oranges analysis. IMO it's highly likely that Strike's PB gas could attract some of the highest gross margins in the industry which would tilt any assessment of resource metrics to the high end of historical ranges.
Accordingly, doing some basic maths of potential future resource size multiplied by $/Gj gives a sense of what could be. The other high-level value tool is to consider the potential revenue available to STX from utilising the planned for processing capacity. Applying some rudimentary maths can give you approximately 350Tj/day (approx 90 raw from Haber and 260 from the proposed third party processing facility). I fully expect STX will prioritise SE over WE. There is ample time for this to play out, with the first planned SE well (STX 100%) to be a pivotal moment. The corollary of Strike favouring future production - as operator - from its 100% owned leases is processing capacity being used to predominantly process 100% STX gas. This is another reason why the EP469 non-operated party cannot guarantee (with any certainty) any WE volumes beyond the planned Phase One.
Acknowledging the above, IMO you can easily build a future annual revenue profile of approximately $600m for STX without adding in other Haber revenues beyond raw gas inputs.
Of course, the above is high-level, with a healthy assumptions list but it's what makes owning this stock today so interesting. Applying resource metrics, a rough discounted cashflow utilising planned processing capacity or future EBITDA multiples based on predictable revenue streams with strong counterparties all support Alexie's view that a foundational case for big value upside is there. Being operator is fundamental to this analysis.
However, it's absolutely sound for the likes of Al99 to note there are risk guardrails to remain fully cognisant of. And every investor will apportion a different discount for risk. That said, the Permian Gas Fairway could become one of those rare opportunities where massive resource meets low cost of extraction, delivering outsized returns. That's what we are all hoping for.
Alexei, one comment on timing. - you mentioned in a separate post that STX would need to fully explore all its ground to get a complete understanding of value. STX acreage is so large and extensive in the PB that this will take considerable time. My thoughts here are that within 18 months we are going to have high visibility to the resource potential. With the extensive data available from WE2/3/4/5, SE1 (and maybe SE2) as context then the Minjiny 3D seismic is likely to provide extraordinarily high confidence in delineating what is in the Permian Gas Fairway across 100% STX exploration leases. This survey can be compared to the WE and Trieste 3D surveys and well control data. Accordingly, in 18 months Strike should have three fundamental pillars of future value:
- extent of resource (advanced delineation) across Greater Erregulla - likely future production cost profile (read margin potential per GJ) - developed view of market potential (demand for PB gas - can demand match potential supply - is a market there for all the gas)
I'm more than happy to give the Company 18 months to crack the code on the above and IMO with the planed activity program we really are in the 'go zone' to build a compelling value story way earlier than a lot of people appreciate. A level of patience is still required which doesn't equate to coming to HC every day and expecting amazing revelations or for the Company to put out daily updates. To me 18 months is a short to medium-term time horizon. If your horizon is 4pm today or Friday evening than this isn't the right stock for you.
Alexei, you also mention potential M&A not as a ramp but actually a risk. I totally agree that outside of the obvious technical/drilling challenges, M&A - or premature M&A - is desirable. Looking back when STX went sub 10c last year was probably our most vulnerable time. Even today at 33c, corporate activity would be frustrating. Short-term drilling success and/or progress on Haber will hopefully be enough to edge the price closer to 50c. Then we may have some clear air for a while. Looking out further, SE exploration success and/or positive Minjiny analysis and who knows what the value could be. At this point your value estimates just maybe could not only be imagined but reasonably envisaged.
Looking forward to successful drilling in H1 and hopefully a random Company announcement or two along the way to spice things up even more.
GLTA,
Adaltiora
STX Price at posting:
33.5¢ Sentiment: Buy Disclosure: Held
(20min delay)