The 10-k is a portrait of a little company that has made some big bets that had better pay off, and pay off soon. If this makes some investors jittery, well, that is exactly what they should be. Companies with balance sheets like STTX aren't producers, they are high-risk/high-return exploration plays. There are lots of junior-juniors that have production to sustain them from one quarter to the next. Not STTX. Rather, STTX is all in on at least two rank wildcats, in areas with no other producing wells for more than 20 miles in any direction. So the real question is: how are these projects doing? On this, STTX management has been appropriately tight-lipped. But that should change.
As some of us have been documenting on these pages, at least one of those wildcats -- the joint venture, in which Whiting Petroleum has drilled the Moroni 11M test well -- is showing concrete signs of success. STTX should receive some value for its participation in this 31 sq. mile project. Five percent of 31 is 1.56 sq. miles, suggesting a net of about 3 Moroni style wells, whatever those turn out to be. But news on this front will be slow in coming, because the process of cleaning up the test well has only begun. The recent filing suggests that, even if production is ramped up to 3,000 bfpd, it could take 2 months to pull out the drilling fluids used in fracking. Only then will we know what Moroni 11M is capable of. The recent filing by Whiting is pretty encouraging, but hardly definitive.
Even assuming that the Moroni 11M is a big success, there is a question as to whether any of the STTX 100% working interest acreage (of which the company reportedly controls about 40 sq. mi.) sits above the Tununk shale. If the easternmost edge of the Tununk goes all the way to Fountain Green, then STTX could have dozens of locations locked up. It's not clear from the 2-D seismic that I've seen that it does. The best case is a company that, in three years time, will have a market cap in the hundreds of millions, if not billions, of dollars. The worst case is that time will run out, creditors will take over and lease options will evaporate. The 10-k is that dismal.
Then there is the Texas wildcat that, so far, no one on these pages has gossiped about. My sources say STTX has a 25% carried interest in 6 wells in this play, and that the test well is going into production. We'll know soon enough whether this rumor pans out. Because if it's true, there should be an announcement soon.
