longtom-santos

Few facts to consider. NXS has long term contract to supply around 250PJ over the next ten years to SANTOS. It will cost STO around $100 million per annum ($4/GJ) based on 25 PJ per annum. So over the next ten years STO has to spend around $1 billion to buy 250PJ of gas. They also have option to buy up to 350PJ. If they decide to take that additional 100PJ it will cost another $400 million. So altogether around $1.4 billion over the next ten years for 350PJ. NXS has additional gas volumes of 71PJ which have been assigned to the Contingent Resources category until such time as a firm sales contract for the additional volumes is secured. So down the track STO may decide to buy that as well (possible another $285 million).I know that to produce all of above gas they would need to drill another production well (Longtom5) .It is safe to say that Santos will spend around $1.5 billion over the next ten years buying gas from NXS.
At today SP of 25c MC is $240 million plus dept of $296 million & cash on hand of $44 million.
IMO it is cheaper for STO to takeover NXS than to continue to buy the gas.
If STO is even to offer 100% premium at today prices (imply SP of 50c) it will only cost around $750million including debt to takeover NXS. Half of that $1.5 billion they will spend over next ten years plus they get all additional assets like CRUX, Echuca Shoals etc for free. Crux with 65MMBBL * $5/bbl = $325 million. I know it is simplified approach but figures are compelling. By the way I am not saying that it will happen . Any comment is welcome.