an unpopular dose of industry perspective, page-11

Trader,

The coreholes are a bit of a mystery to me. But we never get all the information. What we get in those drilling reports are just the coal thicknesses. No methane vs Co2, content, no comment about the permeability of the coal. It is a bit like having a drilling report from a mineral company saying, "we have encountered 50m of copper at 'x' grade. Only half the story.

So, goodness only knows why all those thick coal coreholes didn't increase the reserves much. I really don't know.

The IER answers some questions about the lack of reserves progress. The pilots did not continue to ramp up beyond the initial flow rates. That is part of the problem. The other part was the inability of the company to get approvals for Tintsfield. That is a huge part. And then, on the commercial side*, the inability of ESG to sign any commercial deals. That is what has held back their 3P - they haven't been able to extend their 'market certainty'. Again, I suspect that relates in part to the reticence of other parties to commit to ESG when there were such uncertainties around their reserves growth and the regulatory environment. I ask you, who would sign up for a GSA with a company when that company cannot drill any more coreholes, struggles to get approvals for workovers on existing pilots? If I were a gas buyer, it wouldn't exactly inpsire confidence that the company could deliver. I would run a mile from commercial deals with CSG companies in NSW. Just too much risk that the Government would prevent them delivering in time.

Trader, as I have said, I am very critical of ESG's communication. But the regulatory environment has made it almost impossible to proceed. I hear on the grapevine that even Santos have had similar problems getting approvals for their own activities in Gunnedah. No wonder ESG doesn't see much reserves upside in the near term.

But, ring the company. Don't rely on me. I am led to believe, based on my own conversations recently, that ESG management are willing to discuss these issues with anyone who wants to get to the bottom of the reason for selling to Santos.

Yaq

* Did anyone notice ERM Power buying into MEL? It looks like ERM are looking to secure alternate sources of gas. My bet is that, like TRU, they will look to use this shareholding to negotiate a supply agreement from whoever ends up owning MEL. I very much doubt ERM would be a buyer for the whole of MEL.