push your chips in the middle of the table, page-34

Dex,

Okay, here is what I think the plan is. Bear in mind that this is just my analysis. No 'special' info, no mystic dreams. Just my best reading of the known facts:

I think ESG realise that the best way to extract a maximum return for themselves and their shareholders is through a multi-party bidding process. The big guys won't pay top dollar unless they have to, and we only find out how much they are willing to pay by having other big players bidding out in the open. Tie up the register, delay action as much as possible, keep your optionality as wide as possible, prove the reserve and the data, and light the fuse.

NLNG - I think this is a viable Plan B. They have clearly advanced talks with Japanese customers, who could supply the capital and the markets. But I think this is not the preferred option. It is very doable, but extracting value in this way, and via domestic sales, will be highly profitable but more lengthy.

I think ESG want a nasty, all-in auction with multiple bidders who all want and need ESG's resource. It is, after all, the biggest independent CSG resource on the East Coast, and ESG claim it will be equal to of better in terms of cost of any other player.

In terms of timings, and strategy, here is what my best guess is:

We know there has been significant shorting of ESG. And I think ESG realise that once an announcement is made, the shorters can reenter the fray with the threat of the announcement now gone. So, far better to hold back the announcements until the last moment.

We know that two major parties, BG and Santos, will likely get their approvals on 22nd October. And Santos (and perhaps Kogas) need these approvals in order to move with confidence on ESG. Santos need the extra money freed up by selling down more equity in GLNG; they need the commercial certainty of a full two-trains worth of offtakes; and they may need a foreign partner to assist in the ESG bid, a la Shell and PetroChina.

So, if you were ESG and you knew you had Santos and other party(ies) as bidders, what would you do?

Well, I would wait until shortly before Santos and others like BG are able to move. Wait until all the horses are lined up and ready to race before firing the pistol.

So perhaps a week or so before the race start time, I would then arrange it such that NSAI and can produce a large reserve upgrade and release it shortly before the predators' key dates. ESG gets a massive boost in their share price (notice how they haven't set any expectations this time... it will be all upside). They may also announce one of those deals that will be great news for the market, but totally unacceptable to Santos. Another big boost in the share price.

Then, the approvals are in. Santos is now free to move, as are BG. And not only that, THE REST OF THE PLAYERS know they can move ahead with confidence, once the government has okayed two projects. It frees up the whole industry for investments to be made with confidence.

So, all of a sudden, ESG's base price is up after very large reserve upgrades and a big commercial GSA, and the big players are now in a position to move. And no time for the shorters to move back in (not that they would want to).


Whilst frustrating, ESG's coolness and silence is a sign of strength. They have the scrip all sewn up so that a low-ball bid is unlikely to succeed. They have had 2 years to get multi-party interest and show to major players the reserves and the full-field data; and, they managed to delay a premature auction by cooperatively with HGO managing HGO's stake down from 23% to 19.99% fully diluted. If not for this, then HGO could have auctioned their 23%, forcing a full auction for the whole of ESG, before ESG were ripe for harvesting.


Dex, this is my best reading of the data. I have numerous reasons for thinking there is multi-party interest in ESG, which have previously been discussed. And ESG's behaviour continues to reaffirm that. Yes, it is stressful for investors watching ESG play it so cool right up to key dates. But they can play it cool because they know they have multi-party interest, and are not vulnerable.

It is only the vulnerable company with only one natural buyer who needs to get their starting price higher - in a multi-party situation, the starting price doesn't matter as much, just how much the underbidder and bidder are prepared to pay.

There will be those who disagree with both my analysis, and with the wisdom of ESG 'close to the chest' strategy. We will find out soon enough...

But I have every confidence that ESG have played it brilliantly, and will get the big result they seek.

But one thing is for sure - ESG have not sat around for the last 18 months, speaking to nobody, and waiting for the coup de grace from Santos. No way.

Yaq