reserves, metrics and gas prices, page-35

Monsters,

Sorry I have taken a while to get back to you, and respond to your questions.

"ESG, has I take it verbally confirmed that the BB wells are producing "commercially""

> Yes, I asked this direct question at the AGM, and DC said yes. Peter Lansom chipped in that ESG would not be able to book 2P reserves if this was not the case.

"Then what effect would a "change of control" bid by a LNG player have on that contingent resource??. ie a bid itself arguably creating a market and thus enabling a conversion of 2-3c to 2-3p."

> That is my understanding. A bid to acquire ESG by someone with an LNG project, or a GSA to sell into QLD would enable this large contingent resource to be upgraded to a reserve. The current 2C is only market constrained. Worth thinking about given the magnitude of the 2C number, and the fact that ESG are negotiating with various parties.

It makes for an interesting Catch-22 situation. Someone with an LNG project bids for ESG, and instantly ESG can justify a massive reserve upgrade. As DC said at the AGM the previous year, majors bought up CSG companies on the basis of a contingent resource, because they already were the market.

So the very act of bidding creates a 'reasonable likelihood' of the target's gas finding a market.

Here is the interesting bit. Bid > Reserve upgrade. But then, what if the bid is rebuffed? Could ESG justify to the certifiers that the reserve should remain high? Reserves can go down as well as up (as Santos well knows!)

Anyone else care to comment?

Yaq