jp morgan initiate coverage, page-32

Hi Alley,

You seem to have been a ESG Holder,not an observer, since about 1/4/11 when the Tintsfield Pilot started up. You now have a stake and also in STO so it is understandable that you conflate ESG and STO together. STO got its hands on ESG way back in 2009 and since then there has not been one bid for ESG. So history is on your side. ESG doesnt seem to attract bidders because of the STO strategic tethers on the ESG shares and the 35% Narrabri JV %. A lot has changed since then, but STO still seems complacent in its hold on ESG. It is supporting JV Appraisal efforts and seems content. A $1Bn bill for full field development is a very different issue and is a lot to fund.

This contentment to me means that STO sees ESG as providing gas for whatever great USE that STO can negotiate. If North to Gladstone GLNG then a GSA to ESG to fill the pipe.

ORG on the other hand has got a problem with its APLNG Tristar reversion issue that could see it a bit short of gas for its Gladstone aspirations. It has some QLD tenements outside APLNG but relatively minor in comparison.

An ORG - STO control of the Narrabri JV would be the dream outcome. STO keeps at least 35% or more and ORG the rest.
Even 50/50 - both would have access to a lot of gas.

It could be a money spinner for both with the entities STO ESG and ORG doing a deal with ESG being taken over with STO/ORG scrip. Later on STO/ORG sell out at a big profit to their respective GLNG and APLNG groups once the field is fully appraised. Two parties with markets able to fund development. While we ESG holders get subsumed in STO/ORG scrip we would still have the option of having a stake in the Narrabri Adventure.


A takeover will always be better in the short term for shareholders. I can see your point about Woodside with Shell but that was very early days in the industry while here we have a boom time that has not been rationalised yet. The Board exit strategy for the ESG has probably always been the Takeover hence the relentless display of the 2008-09 takeover premiums in the DC presentations Slide 5 I recall. He now doesnt do that so the Takeover is less likely in his mind but always possible.

Almost Everyone here in this Clinic wants a Takeover so we can get our 1mthVWAP+40% at least and then can rejoice.



Cheers