Howdy again,
Wasn't sure I would be posting so soon given my 6 month hiatus, but here I am with food coma, perhaps a bit too much eggnog and a few thoughts to add to my last post.
Straight off the bat I must say the recent media coverage is a game changer, an absolute early Xmas present as some have said. Instead of reading some token words from a govt sub-committee along the lines of "we are taking everything on board, blah blah blah", we have heard from the top dog himself, Premier Cook, with words to the effect the govt is genuinely flagging a 180 u-turn on onshore gas export. So it's 100% on the table and essentially just need to nut out the particulars. That's how I read it anyway... I believe, in my experience, this change will come into effect in the first quarter of 2024.
Why I am excited? It is clear the govt, and more importantly the Premier himself, has listened to and taken on board what so many in the industry have been articulating for sometime now. The fact Mr Cook has acknowledged that in order to make sure that the significant capex required for these PB gas plants are commercial and gas will be brought into the domestic market sooner than later, we (STX and others) need early cash flows, which can be brought on by early exports to the international market where we all enjoy a higher price. Simple right? I was also concerned the govt may favour individual exemptions like what BPT enjoy, honestly I had no faith in a transparent and fair process, but pleased to see language from Mr Cook indicating "all players" will be listened to. I feel Mr Cook, unlike McGowan, will follow due process in this policy change, ensuring no favoritism or perceived conflicts can be alleged unlike what occurred with BPT's exemption. This will be by the book.
So what does this mean for STX? In one word - Supercharge. If I may draw you back to STX's mid-year announcement, back in June this year IIRC, where SN articulated STX's longer term vision or what he called their "Phase 3 preparatory activities". SN laid out a bigger picture to build out their modular gas facility to four gas processing modules (40 TJ/d each) for an envisaged 25 years life span. And I wrote back then that to think about that for a bit. STX had just articulated a high degree of confidence in it's Greater Errugulla gas fields (that's WE & SE) that will be able to process and supply up to 160TJ/d over a 25 year lifespan. Multiple those numbers out and STX have reason to believe they will over 1,400PJ in reserves. That's about 1.38TCF of gas. Not bad at all. And now 6 months later after 2 successful SE wells we can indeed see the foundation of gas reserves further strengthening that will provide the foundation for committing gas plant expansion from 40 to 80 TJ/d at the minimum (pre any policy change). However if this policy change comes into effect, I flag a full-frontal 160 TJ/d gas plant build out - if not more. I mean if BPT can commit to 250TJ/d when STX have greater reserves in the PB why can't we can go the full hog? And... if this supercharged strategy does play out due to the policy change - a 20c p/share uplift or ~$500m MC increase would not be out of the question. Just look at the numbers on my last post of ~$1bn+ revenues p.a. from a 50/50 export/domgas policy change. Wasn't it MQG who forecast a high-case $1+ SP... IMO that would be feasible if this policy change were to come into effect.
Worth also noting that STX have talked about commercialising SE reserves via a gas plant on the precinct, aiming for 2025 production, not far away at all. Separately they talk about a 87TJ/d plant for WE in 2026. It's obvious why that is - Gina, our not so friendly 50% WE partner. STX is allocating "limited" funds to 100% owned SE development for obvious reasons... and will eventually get around to developing WE when STX, as operator, are good and ready. Will that please Gina? Not likely... as she will, IMO, be keen to take control of the energy requirements for her own burgeoning lithium investments. With LTR and AZS and a few other LI stakes on her books, it is clear from my POV that she wants to rival MIN/CE in the lithium industry and will be moving rapidly downstream like so many have flagged. Watch this space for potential M&A activity as she is the likely candidate IMO to take STX out. Perhaps it will be a super-marriage with MIN/CE across lithium, iron ore, gas/energy. It will be colossal.
So you don't need to be a financial analyst to understand how compelling the FID business case would look when you factor in any degree of export income. Financiers would be knocking on the door offering capital to underpin this accelerated gas strategy given the confidence & security in long term export revenues. 1 x 40TJ/d module? No thanks, lets push the button on all 4 and possibly lock in a FY25 gas production from the Greater Errugulla precinct. Happy days. And, I am thinking if STX was to go down this accelerated path, SN would indeed push the button on securing it's very own drill rig, just as MIN has done. Whether that is to purchase out right or simply pay to bring one to west coast for sole use, doesn't matter. It would be a monumental shift in strategy as they commit to drilling out the substantial acreage across WE - a decade of drilling would be my bold call.
So potentially if all aligns for STX and MIN in this policy change, we could see (with BPT) around ~750 TJ/d gas plants pumping away into both the WA domestic market as well as the lucrative export market (via NSW KGP). It will, in theory, ensure plentiful supply to the burgeoning domgas market for electricity baseload / firming generation and more importantly the soon to be burgeoning critical minerals processing industry. I would not be surprised to see the WA domgas market grow from todays 1200 TJ/d to 1500 TJ/d by 2030, well supported by the relatively recent discoveries and commercialisation of the Tier-1 PB on-shore assets. It will IMO ensure there is never a supply deficit and that domgas prices will never exceed $10GJ and it will ensure WA will never see the debacle that was the east coast gas supply market in 22/23. It will ensure that everyone is indeed a winner, just as Premier Cook will want.
Cheers again and Merry Christmas!
Brobel
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