The grant of West Erregulla production licence is GREAT news...

The grant of West Erregulla production licence is GREAT news and adds to the intrinsic value of STX.

The potential for onshore Perth Basin participants to be able to export gas where the domestic market is adequately supplied is good news. STX may be able to utilise in the future for WE gas not contracted or future exploration successes.

Today, like the last few months has seen a share price reduction despite this great and good news. A reasonable person would deem this to be irrational.

Possible explanations are for this trading responses are

1. Someone wanting to maintain a low share price for a takeover offer

2. Hedge Funds/Shorters realising that due to the imminent removal of STX from the ASX200 and there being limited institutional demand for STX shares that they can purchase back STX at a lower price when the ASX200 rebalance occurs. There is significant retail support for STX but this has been unable to counteract against the 10% plus shorting.

3. Hedge Funds/Shorters betting on a capital raise required in the future to fund WE and SE development.

My view is that all 3 explanations are playing out.

It would not surprise me for a takeover offer to occur after the ED result. It does not matter if it is a positive or negative drill result as the takeover price will change to reflect the ED drill result. Whether the takeover comes before or after the ASX200 rebalance depends on whether the takeover party is working with the hedge funds/shorters. Rebalance date is 20 September.

The takeover party could have 4.99%, JP Morgan last substantial shareholder notice had them at 5.04% and State Street last substantial shareholder notice had them at 5.27%.

Where there is no working together with shorters, the takeover party can launch a takeover for 25 cents after the ED drill result knowing that JP Morgan and State Street will accept the final offer. The takeover party can also enter into an agreement with these parties that they will accept a takeover offer based on final takeover price before launching the takeover. This gives these entities certainty and ensures that the takeover party has 15.3% prior to launching the takeover. The institutions that need to rebalance due to ASX200 will accept the takeover offer. Not sure of the number but could be in range of 20% to 50%. Takeover party is in the box seat to gain atleast 50.1%.

In this scenario the shorters will likely suffer trading losses.

Where the takeover party is working together with shorter(s) they will delay the takeover until after the ASX200 rebalance. The takeover party can lend their shares to a shorter and then buy an additional 4.99%. The shorter buys back the STX shares on the ASX200 rebalance and returns the 4.99% shares to the takeover party. The takeover party then has 9.98% of STX. JP Morgan last substantial shareholder notice had them at 5.04% and State Street last substantial shareholder notice had them at 5.27%.

The takeover party can also enter into an agreement with these parties that they will accept a takeover offer based on final takeover price before launching the takeover. This gives these entities certainty and ensures that the takeover party has 20.3% prior to launching takeover. The institutions are likely to accept the takeover offer. Not sure of the number but could be in range of 15% to 35%. Takeover party is in the box seat to gain atleast 50.1%.

In this scenario the shorters that assisted in keeping the share price low are rewarded. The shorters betting on a capital raise are likely to suffer trading losses.

Where there is no takeover and it is only scenarios 2 and 3 then hopefully the STX recovers to intrinsic value of 30 plus cents after the ASX200 rebalance.

The worst scenario is where shorters are convinced that there will be a capital raise and continue to short the share price until they are proven right or proven otherwise. In this scenario the share price remains depressed for a considerable length of time.

My view is that a takeover will occur but would be comfortable if STX remains and increases to intrinsic value after the ASX200 rebalance. The upside in Ocean Hill at 300PJ is significant and it would be good to still be an owner of STX when this takes place in early 2025 subject to cashflow capacity to fund the drill.

If it is scenario 3 it just sucks as because it will be a considerable time before retail shareholders make money on STX.

AIMHO