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Acorn,

to reply to your post, and that of Mr Perry. LONG POST.

Do I think it is appropriate to value ESG on a 3P basis? What about the contingent resource? Shouldn't there be a value allocated to the contingent resource that Santos has a market for and that reasonably expects will (in large part) be upgraded to a reserves in the fullness of time?

Yes, I do think the CR should be given a value. Personally, I think the idea of valuing a CSG developer on the basis of 3P is stupid. All the 3P says is the junior has a reasonably likelihood of finding a market for x amount of their CR. But if you think about it, that is not where the value is. The majors have the market, we have the gas.

What a major is really buying is two things:

(1) a demonstrated technical ability to get the gas out of the ground economically (demonstrated in the 2P),

(2) and a large contingent resource.

The majors already have the market. And the Majors know with CSG that significant portions of the CR will be upgraded to a 2P reserves, given enough time, money, drilling, approvals and field development.

The trouble is, the Majors only pay on the basis of reserves. It is all very well for DC to argue that it is all about the contingent resource. But the Majors are the gatekeepers to the large LNG markets. It is the huge barriers to entry - massive capital costs, technical and project risks etc. that keep it that way. And without independent access to those markets, we can't prove our gas as reserves.

So, IMO, it is rather silly to value CSG developers on the basis of 3P. What do the Majors care what markets the juniors can show? They have their own markets anyway. And in negotiations they would simply say to ESG, or BOW, or whoever, 'Okay, you want to be paid on the basis of an LNG market? Fine. Go and demonstrate that you have access, independent of us, to LNG markets. Go show us the access to the capital. Find the JV partners. And when you can credibly do that, then we we will pay on that basis. Otherwise, don't kid yourself'.

BOW have a contingent resource and future reserve upside as well. So do MEL. So do all the other juniors. But all the other juniors are not getting $ 0.50 per GJ of 3P, or around $1.00 per GJ of 2P. Everyone else would KILL for such metrics that we have. So ask yourselves, why is our gas worth 3 times as much, per GJ of 3P, than BOW's? Without the ability to certify more reserves, we simply cannot demand extra money.

ESG was never ever going to 'commercialise' their gas, especially with Santos as a partner in the field, and large shareholder. They were always going to be taken over, by someone. ESG's best bet was to show the economics of the gas production through drilling and pilots, go through the motions of getitng their own commercial options (this is all part of the game), have lots of folks through their data room, and then hopefully get an auction situation. But ESG was always about the takeover - the number of interested parties, and the amount of gas reserves you can certify, sets the price.

IF we get another party intervening, or some sort of superior commercial offer appears from another party (which may allow for an unconstraining of our 2C resource to a 2P reserve), then ESG could justify a much higher price. But otherwise, only one party in a room doesn't constitute an auction. And when there is only one buyer, there is no reason for Santos to pay more for the contingent resource. They just don't have to. Santos knew the reserves upgrade was going to be crappy. And so did ESG. (The only bunnies who didn't know was US!) It takes an underbidder to force Santos to pay more. It takes competitive tension to achieve that.

It all comes down to multi-party interest, and whether ESG is really committed to the deal or not. If ESG has got another party who is prepared to outbid Santos, then we have ourselves an auction. But if not, ESG may be resigned to selling themselves at the price they have negotiated.

(but, my respect does go out to those who are taking active steps in terms of trying to get up a NO VOTE.)

Yaq (just giving my honest views, whether they are popular or not).