asx compilation, page-18

Mr Perry,

I agree with all your points.

- There will be a reserves upgrade. But words such as as 'strong' are entirely relative. The sort of words they use in advertising that can mean everything or nothing.

- Santos is likely to sweeten the bid, if for no other reason as to ensure that they get the deal across the line. Call it insurance. having been on the losing side of acquisitions more than once, are they going to risk missing out by being too stingey? Probably not. But ESG is committed to merging with Santos. If there is a sweetener coming, it will already have been agreed behind the scenes. ESG and Santos both know what the reserves are already. It is only ESG shareholders who do not.

- Santos are committed to merging with ESG. They won't walk away. There are still short of gas, they see the benefit of owning gas in NSW, especially once the Carbon Tax is legislated.

But if we expect to receive a huge amount more, then that has to come via a much bigger reserves upgrade. Demonstrate the reserves, you get the big bucks. Get multi-party interest, you get the big bucks. Fail to do either of those, you don't.

Holders of BOW and MEL would KILL for a metric of $0.50 per GJ of 3P. And yet ESG holders feel like they have been sold out at such a price...

The problem is not with the price. The variable here is the reserves. ESG holders expected really 'strong' reserves upgrades after 18 months of wating. And we also expected a significant contribution from Tintsfield, after getting approvals to drill the thing was so hard won.

It is all down to whether ESG have been able to increase reserves; whether they have shown NSAI that there is an extra market beyond what they had at the end of 2009; whether they have or can manage to unconstrain that market constrained 2C figure. And whether ESG have been able to attract sufficient 3rd party interest to trump Santos.

The biggest problem here, the reason that ESG supporters are so divided, is that we simply do not know what the reserves are. How any investor can accurately value a gas developer when they don't know what the reserves are, I don't know.

Yaq