push your chips in the middle of the table, page-2

On the poker theme, PP, here are some observations about investing/playing poker, when not all the cards are seen:

We can't see all the cards, however, we can observe the behaviour of those who HAVE seen all the cards. Santos participated fully in the cap raising (and they have all the data), as did a number of other institutions and foreign buyers. ... A quick, tiny discount capital raising with full acceptances. That says to me very strong cards.

How are ESG playing their cards? Well, close to their chest! But what can we infer from their behaviour? Well, they came out with a provocative open briefing some months ago, where they made clear to Santos and others that there were multiple options for the gas. They theatened Santos that the MOU's would become GSA's by the end of the year, and they threatened to go ahead with their own NLNG project.

Now in poker terms, why would you raise the stakes if Santos was the only interested party? Why would ESG seek to start a fight with Santos before the year was out, if Santos was the only bidder and ESG's hand was weak? Either ESG is a crazy bluffer with nothing in their hand, or it is a sign that there is multi-party interest and ESG have a strong hand.

You don't start a fight with a bully unless you have big mates who will step in...

Furthermore, we can infer that ESG has got things technically well in hand - the focus has gone from Narrabri to the boardroom. It has all been about commercialisation lately - a deal with the Japanese (and alusions to offtakes with "Japanese and other countries"), MOU's with domestic power-gen companies... so we know that ESG has the confidence to press forward, knowing they can deliver the gas.

Again, we can't see the cards - we don't know the exact flow rates - but, ESG say they are amongst the best if not THE best in the industry - and that heavy-hitters like Hitachi get involved is strong support for this. Hitachi would not waste their time if NLNG was a pipe-dream. ESG would have had to show them all the data. So Hitachi have seen ESG's cards.

We never invest with full information. But even based on the 'known knowns" - the demonstrated 2P reserves, ESG is cheap. Add to that a coming big upgrade, commercial deals both international and domestic, a known predator and the likelihood of others, and you can tell that ESG have got strong cards.

So I am certain DC-10 isn't bluffing. When he taunts Santos both at the AGM and in writing, he is doing so because he has 'pocket-aces', a healthy stack of chips, and he is running the bidding.

Yaq