Valve at one point had an internal project called "Stars of Blood," and it was all about buckaneering on the galactic sea, co-founder Gabe Newell said. Newell was speaking to a group from 4chan.org's /v/ board, who paid him a visit on his birthday to drop off a Mann Co. crate and pick his brains about rumors and, apparently, Source Engine 2.
"We had an internal project [incomprehensible] called 'Stars of Blood.' It was a space pirates game. That never saw the light of day," Newell said, with the inquiry starting at 47:45 in the above video.
The question was spurred by previous rumors of a Valve space game called "Stars of Barathrum," but Newell appeared just as confused by that name as we were. Though now that we think about it, "Barathrum" definitely has a pirate-y ring to it. Rum, anyone?