its a waiting game ..., page-41

SSkim,

Thanks for your reply. You asked “I would be keen to find out how you concluded it was not commercial since from my sources it burned for 30 months (from memory).”

You are right the Ergo Exergy Chinchilla trial did run for 30 months and such reliability and consistency is a positive factor from a commerciality perspective. IMO you would also need to look at gas quantity and quality to assess its commerciality. From my perspective it was not commercial because the volume of gas produced was insufficient for a commercial application. From memory it produced around 3500Nm3/hr from a total of 9 production wells. By comparision, you would need over 600,000 Nm3/hr for a 350MW power station. Hence my question re Majubu production figures. I wanted to know if anyone had figures indicating Ergo Exergy had improved its ability to convert coal into syngas. Without such confirmation I am reluctant to take up CXY shares. It also fits in with my preference that CXY amend its marketing approach of suggesting a 200/400MW power station is just around the corner. A smaller scale 20MW station might be more feasible and also practical from a timing perspective. I trust you can see that these are fair questions/positions to take and I hope it helps your own understanding of issues.

By the way, CNX and LNC have also not produced commercial volumes of gas and in CNX’s case its why they are building a not very commercial sized power station. There is nothing wrong with that though. It fits in with the Qld government’s UCG policy timetable and is consistent with their current panel size (1PJ).

Poyndexter,

Yes it has been a long time. I have been posting less lately and reading more.

We have previously discussed inhouse versus subcontracted UCG services on a previous thread. My position was that it was sensible for CXY to use Ergo Exergy simply because the cost of building an inhouse capability was not within its reach given its size. I do not think it is sustainable to subcontract out your core business though. For these reasons I think CXY will eventually move down the inhouse route once they get some scale. They will do so to acquire the commercial and technological freedom that it provides.

In my readings I have come across the Ergo Exergy charges applied to LNC in 2006. It’s a complicated set of arrangements. Basically, its US$1.3M (A$1.6m) for a general license and US$1m (A$1.3m) for each site thereafter and a further US$0.05 per GJ ($A0.63 GJ) as a production royalty.

See http://www.lincenergy.com.au/prospectus.php (file size is 4mb). See Section 11.

On my figures that amounts to around A$4.5m in production royalties on a 350MW station. Build or supply four such stations and you are paying around $6m in fixed charges and around $18m in variable annual charges. Multiply that up by a 30 year supply agreement and you are getting into some serious overheads that would suggest an inhouse UCG capability is the only way to go. It comes back to my point that if UCG is your core business you don’t want to subcontract it out unless you have to. Hence, CNX and LNC may have incurred more development expenses than CXY as you indicate. However, it is for a very good long term reason I think.

You are correct we are all essentially studying the form guide. My approach has been to invest in CNX and particularly LNC because they are monetising some of their non-core assets It reduces risk because valuation of LNC’s coal assets for example is easier than trying to value its potential (which may or may not be realised) to convert coal into fuel. In other words, you have some possible upside, but with a floor on the downside. One thing is certain for me. All three UCG companies will commence with electricity power station supply/construction projects. The capital costs are less and more amenable to staged upgrades as technology develops. I would prefer that they not own the station, but rather simply supply it with gas (reduces electricity market risk). I think from memory, you would also prefer it that way.

I’m missing the production data that would allow me to complete the triple play and buy CXY shares. Does anyone have more recent Ergo Exergy/Majubu production figures?

Have a good day.

Cheers

Bleasby.