jp morgan initiate coverage, page-7

Another snippet from the JP Morgan report dated 5 July that should provide some ressurance of both the good results at Tintsfield and the potential size of the upcoming reserves upgrade.

"Potential reserves increases of 40% to 70%+ feasible"

Based on previous experience with other CSG operators, we believe that 3P reserves can be converted to 2P with more extensive drilling and testing. We therefore focus
more upon on 3P reserves when it comes to immature CSG fields.

In the near term, the company expects positive results at the Tintsfield pilot in the Hoskissons coal seam to make a ?major contribution? to PEL238 reserves upgrades. Some Hoskissons Seam gas was booked to 2C resource in Feb 2009 (15% of the total, or 458PJ). However, zero Hoskisson Seam gas was included in NSAI?s last assessments of PEL238 reserves. ESG has indicated the Hoskissons Seam could
comprise 30-40% of its reserves in a developed field. If we apply those percentages to the current reserves base, it is possible to imply a range of 40-70% increase in 3P
reserves from the Tintsfield pilot flow performance alone.

Other pilot well results are likely to enhance the reserves booking further. We believe that at the upper end of the range, 3P reserves could feasibly double. Historically PEL238 has seen periodic reserves upgrades of 80%+ (2P) and around 40-50% (3P)."


So .. their expected 70% increase in 3P would see ESG's share at 3,090 PJ, and an 80% increase in 2P would see ESG's share at 1,778 PJ. These are their estimates of course and could be high or hopefully they could be low!

And that's an interesting comment from ESG that the Hoskisson "could comprise 30-40% of its reserves in a developed field". Given that they have 9,000 PJ already at a 3P + 3C level with nothing for the Hoskisson then you do the maths .... (my guesstimate ... say the 9,000 increases to 12,000 over time for seams other than the Hoskisson, then that would mean the Hoskisson could be around 6,000 PJ eventually). Maybe I'm getting carried away?

Also they comment on ESG's takeover appeal saying that just as BG owned a chunk of QGC and equity at a JV level, and Shell had the same involvement with AOE .. before both were taken over .. similarly Santos has this type of involvement with ESG. And now the ABC resports speculation of a takeover by Santos????

H