Overall it was as positive a meeting as can be expected when you have a protest going on outside and some vocal landholders affected by the proposed pipelines on the inside. Casey and Anderson handled things well, and Casey was sufficiently "apologetic" about all the delays to sidestep any possible anger on the "disclosure" issue. He seemed a little less fired up that last year no doubt because of all the delays which gave him less to be cocky about.
In addition to the points that bundallee and yaq have commented on already here are my take home messages nearly all from DC's commentary and answers to questions during his presentation:
1) He said that ESG has an "immense" production potential that is demonstrated by the quick ramp up of the pilots after each of the many disruptions over the last year due to weather and water handling issues. It is quite "outstanding" compared to any CSG operation in Oz.
2) He said that there are some issues in Qld with drilling 3,000 wells (he must have been refering to Santos's 2,600 wells and rounding up!) in terms of delivering the gas, and getting the concurrent flows. He was implying they need the narrabri gas I think.
3) The Hoskisson is looking better than previously expected and recent core hole drilling in the north of PEL 238 has extended its areal coverage.
4) FEED could cost $40m for a project this size but it is likely to be shared by their "partners" (I assume he was referring to any offtake partners who take equity in the project).
5) They are planning the stacked pilot for early next year. This will demonstrate their low cost production as in addition to the cost of the Bohena seam drilling and the verticals that they need anyway, they only need to drill the laterals in each of the other seams and that can costs as little as $150k-$300k.
6) Despite the share price not appreciating over the last 12 months he said the value of the company and its assets had increased significantly. Hmmm.
7) Looking to do a GSA with ERM by end of 2010 but it will be conditional on their FID in 2011. Circa 2 year lead time for field and facilities development.
8) Looking to do FID on the Narrabri project development by the end of 2011.
9) He quite firmly stated that ESG is pursuing other options in addition to LNGN and NSW power gen for their gas and that these include supply into the Queeensland projects and gas swaps. Gladstone IS definitely a target. You evidently can't get gas purchase contracts beyond 3 years as everyone is anticipating higher pricing as the Queensland projects approach completion.
10) They are targeting FEED for LNGN during 2011 and FID by early 2012, with a 3 year development period.
11) He believes they are fortunate to be in NSW and have both domestic power generation and LNG opportunities.
12) He is hopeful that Part 3A information will be released but can't say when. they have talked to the "opposition" in NSW to be ahead of the game if there is a change of government in March.
13) In response to questions about the slowness of proving up production at the BW pilot DC said that 900,000 scf/d is "outstanding" given that they have only drawn down 10-15% of the reservoir pressure. It is outstanding because even at this stage of depressurising the reservoir it is already economic. Peter Lansom explained to me afterwards about the 500m head of water they talk about still to be drawn down. This is the water that comes up the inner of the 2 tubes of the well under the pressure from the reservoir (much higher than atmospheric) and it is currently around 500m above the seam. My impression was that more gas is produced as this head of water is drawn down until all the water is drawn down and then you just get gas.
14) On the cost of water treatment and handling he said that it should be only around $0.10-$0.20 per GJ of gas produced. He stated that they are confident about water handling and the issue of dissolved solids because they 'know" the water in their coals because it has not been "recharged" since the coal was deposited (it is the same water that the coal was deposited with).
15) He commented on concerns about interference with aquifers and explained how they case off the Pilliga sandstone (first horizon from which farmer's bores may pump) with a double casing. He also said that their coal seams being deeper have no chance of drawing down the artesian basin water.
16) I asked about whether a LNG off-take agreement would of itself lead to a 3P upgrade and he said that there is "not much" in the currently certified 3P reserves that is there because of assumed likley overseas markets (i.e its mostly due to local power gen markets for their gas).
17)When pressed by PP for a comment on what were their expectations for eventual peak production flows he reluctantly said they will be "significantly higher" and when pressed on what significantly higher meant he said "noteably higher" and wouldn't say any more. PP did well to get that much from him I reckon.
18)One intriguing comment that DC made that still has most of us scratching our heads is that when asked about metrics and the impact of the Shell/AOE transaction he said that it was in reality a lot higher than what the "market" seems to believe. His explanation was that Shell would actually have booked much lower reserves from AOE than the market considers that they had. I will try to follow up on why he said that.
Cheers
H
ESG Price at posting:
84.0¢ Sentiment: LT Buy Disclosure: Held
