Hmm, a premptive offer to try and steal ESG, only to reveal their plan and have ESG strike a better deal with Origin and AGL by overhyping the situation. They have the upper hand right now, and the lion will do well to sit patiently in the tall grass before jumping too soon.
Who cares about 10,000PJ of gas?
I am only interested in attaining FULL Value for 1200PJ of gas as this is what I assess ESG being capable of supplying to the domestic power under a 20 year 1.5GW supply arrangement.
Assumming the price range for 2P to be $1 - $1.50 and that they achieve 3000PJ in 3P and an associated 'value' of 0.05cents, this pitches them around the $1.50 per share low side and $2.15 high side.
Looking at the above gas utilisation scenario, that might be around say $10B in current terms of revenue; but to generate that electricity, there are some massive up front costs as they will have to spend between $1.4B - $2B to get the resource, spend another $2-3B on infrastructure (plant and piping) and around $400m on drilling for full production field development, add onto this water disposal and other operating costs and it leaves margins of maybe 20-30%?
Of course that is all in real terms, and if you factored in carbon price impacts over 20 years, I am sure those margins would widen somewhat. But is this gas utilisation strategy reasonable and relevant? I think so.
Those are some realistic short term full valuations in my opinion, yet my ST targets still lie around $1.30.
Remember, if someone were to buy them NOW, they would do so with very little infrastructure in place or even a concept plan to develop that resource. That would be an unacceptable risk imo, the plan that is.
Not trying to blast you, just trying to inject my opinion, so take it with a grain of salt.
Cheers,
SF
ESG Price at posting:
81.5¢ Sentiment: Buy Disclosure: Held
