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Valuation of $0.420
Added 12 months ago

Making a minor update here, a bit of water under the bridge since my last post but the overall valuation has not changed too much.

First, strike recently announced they are receiving offers >$8/GJ for South Erregulla gas from 2025. The WA market has become much tighter and so I’m happy to creep my gas price up. Was working on 7/GJ, now up to 8/GJ. Sees about 150m of value into the model.

Second, there are more shares/options on issue post the Warrego transaction with Hancock and the Macquarie deal. 2.44bn as of feb 16th 2023.

Third, there is a slight change in equity for West Erregulla due to the sale of Warrego holding. -4%.

Four, there is a lot better access to cash, so I’ve increased value of the exploration assets as they’ll be assessed earlier than before. This is still a thumb suck from me but I’ll go up to 250m. (+150m)

Finally, corporate overheads debt payments etc are going up, so I’ll subtract a bit more there. (-50m)

Overall valuation sitting at a little over 1bn, or 42c per share. My take is the market is more optimistic on prices (consensus seems to be WGO and NWE takeovers represented about $9/GJ is the going rate for secure gas for miners). There is also likely a bit of a takeover premium here too.


I value strike a little over A$800m. Summarized by the following general assumptions and per asset valuations.

Gas price average A$7/GJ. Higher than historical WA prices, but not unreasonable given the bull points I made in my #Bull Case. Expect it to go higher in the near term.

Walyering, Strike 55%. Net value ~$100m after costs, royalties, tax etc based on 68PJ (2P reserves plus some 2C) and online mid 2023.

West Erregulla, Strike 50% + 4% via ownership in WGO. Net value A$300m based on 422PJ (2P reserves) and online 2025. This is backed up by the current bidding for WGO which must put WE in this range

South Erregulla, Strike 100%. Net Value ~A$350m. I'm forgetting about project Haber and valuing as a gas asset (seen via the eyes of an acquirer and its easier for me!). I commend Strike for their vision though so would love to see them pull it off. It would add risk, but it wouldn't be done if it didn't add value (in theory). 275PJ (2P plus half of 2C) and online 2027.

I then subtract some value for the corporate overheads (about $100m) and throw in some for exploration upside and the Ocean Hill resource.

100 (walyering) + 300 (WE) + 350 (SE) - 100 (overheads) + 150 (exploration) = 800m, ~40cps

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#Bull Case
Added one year ago

@Gprp sorry if I didn't make my position clear. I hold Strike, not WGO. I will add, this is in my "speculative/gambling" part of my portfolio. My thesis was based on resource size (although @Longpar5 did a much better job of valuing than I did), gas price pressures not likely to go away in the near future, the potential for the fertilizer business as an add on and advice from a trusted mate who understands the area much better than me. The fact that they are close to production and cash flow is also appealing. From my readings of announcements for both companies it does seem the management of STX are more solid than that of WGO.

It is certainly not a reflection of my standard wishes of 20%+ annual growth, good balance sheet, etc, but when you do have friends in a range of fields it can pay to listen and dabble just as long as it is in that part of your portfolio you label as "lottery".

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#Bull Case
Added one year ago

I am bullish on the Perth Basin in general, clearly not the only one given the aggressive bidding for Warrego. Beach know the basin well and seem very keen having just increased their offer 25% within days of Hancock's offer. Interesting to see what comes next.

The Perth Basin, in particular the deep Kingia reservoir is a fantastic onshore find, some of the best rates onshore Australia ever. The succession of discoveries for Strike, MinRes and Beach/Mitsui is amazing, they have clearly cracked the code. The downside has always been the constrained market. Selling into a well supplied WA domestic market, with a 100% domestic reservation (for onshore gas) has always presented limited upside. Developments have to be delayed, staggered and constrained. However there's been a few catalysts in recent times that are changing that for Perth Basin players like Strike.

  1. Reserve writedowns in offshore domestic fields. Woodside, BHP and Santos have all written down reserves in recent years effectively taking supply out of the domestic market.
  2. Beach Waitsia export deal via NWS. The government showing they're willing to be pragmatic, bending the rules for onshore gas domestic reservation, to support activity in the Perth basin and keep trains full at the NWS. Great upside on price and therefore sales revenue. Strike seem to be suggesting Beach got special treatment due to the Stokes family ownership, probably did, lets see. If the Perth Basin really takes off there could be more similar deals. Also, if WA transitions to renewables at a rapid rate, the gas can be exported to Asian countries who can't transition as fast.
  3. Coming into a strong mining cycle in WA and this has the potential to drive strong demand for gas, which the Perth Basin can deliver for low upfront capex. Evident by Hancock's interest in WGO (and surely if you're interested in WGO you're looking at STX too) and MIN's strong presence in the basin. MINs Lockyer Deep field looks excellent (I will write a note on the Norwest page too, they are 20% in Lockyer Deep).
  4. Strike themselves have contracted Walyering at decent prices, I think they said $6-$7/GJ and I'd expect this to increase in the medium term.

Beach and Hancock can't both get Warrego and to me its logical whoever misses out would turn to Strike. Strike have a greater asset base than Warrego, but not the funding power of Beach, Hancock or MIN. The resource is more valuable in the hands of those who can get it to market fastest and lowest cost of capital. I also suspect the bigger companies would like to be partners with each other, so they're not dealing with a relative minnow such as Strike running their asset and having to deal with funding issues etc. Strike have done a great job on the exploration front, and are about to become a producer with Walyering but I still think the bigger guys will see themselves better placed to develop and produce.

I do agree with Credit Suisse that the basin is ripe for consolidation, those with deeper pockets and the ability to make a market (hancock mines, MinRes mines and Beach with potential export special treatment) are moving in and will devour the little guys in my opinion. The time is right given the points above.

I hold IRL.

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#Bull Case
Added one year ago

Interesting article in The Age today -

Gina trying to buy Warrego energy whose price has doubled in the last month as a result of offers. Strike own the other half of the West Erregulla gas field, along with other fields. Strike has gone up but not by as much. Strike seem to have a significantly bigger reserve so maybe there will be some short term price action with takeover bids. Longer term, if Strike stay independent they will be producing gas in large quantities soon which is a good space to be in.


disc - held

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