what if..., page-30

SF,

I agree that your STO sell down scenario is within reason, except acceptance of DC's $2.6Bn valuation as a basis. STO could only sell their equity stake to a big player at about the current market price unless DC releases a catalyst.

I reckon that 35% in a JV going towards NLNG would be reasonable. The 48% you use is with their 20% beneficial interest included . Selling their equity in ESG would mean they lose any blocking ability and would limit their option to profit from a contested takeover. I doubt that STO would sell that equity stake as the two tether combination was too carefully executed to give them the option of an ESG Takeover at a time of their choosing - I expect them to hold their position and if ESG wants to involve them in the low volume start-up of 1 mtpa at NLNG they could be interested. If ESG invited STO into the circle-of-trust it is more likely that STO would agree to ESG selling down to attract buyers.

STO shareholders are probably looking forward to a CR top up :)

The Santos Gas Reserves problem - I have to do some more research on drilling intensity but I summarise it so far as below:

Assumptions
-2x 3.6mtpa nominal trains
-1mtpa requires 60PJ feed + 5PJ for plant power (STO use 600TJ/day for 3.6mtpa 60.8PJ/yr, but give no figure for plant power)
- contract term 20yrs
-Required maximum 2P for 2 Trains = 2x3.6x65x20=9360PJ (each train 4680PJ)

STO Reserves Report 31/12/09
GLNG Area
2P=4003PJ, 3P=5954PJ,2C=2769PJ
Gross Gas available = 2C + 3P = 8723PJ

Typical conversion of 2C and 3P to 2P is about 25%/yr based on industry experience in so far that the fields were being developed for powergen and utility gas not at the intensive rate required for LNG export (Reference ORG Presentation 15/9/08 Slides 24,25 - my estimate of about 25% from slide 25)

Is it reasonable to expect that STO with its many rigs and the urgency of the FID deadlines to have increased the intensity , so is a 40%/yr conversion rate possible ?

Minimum 2P for end of 2010 to be a 4003 x 1.25 = 5003PJ
Maximum 2P for end of 2010 to be a 4003 x 1.40 = 5604PJ
(the 2010 Year end reserves report should tell the story - due out Feb 2011)

This min-max would cover Train 1 FID for end of 2010. The following figures are for a 2 train accumulation without subtraction of the Train 1 commitment.

Promise of 750PJ 2P from SA Cooper JV for Train 2
plus Further -
Min +25% from GLNG area 5003x1.25 = 6254PJ
Max +40% from GLNG area 5604x1.40 = 7846PJ

New added tenements ? STO said (Presn 12/10/10) they had dedicated reserves and resources >10TCF so you could deduce that the new areas added 10,000-8723= 1277PJ gross of which 1/3 could be 2P by end 2011 ? = 426PJ

Min 6254 + 750 + 426 = 7430
Max 7846 + 750 + 426 = 9022

The full 2P accumulation for 2 trains by the end of 2011

Min 7430PJ - Shortfall - (9360-7430) = 1930PJ
Max 9022PJ - Shortfall - (9360-9022) = 338PJ

We could say that there is an apparent shortfall of between 338 and 1930PJ - average 1134PJ. A greater conversion efficiency >40% due to more intensive drilling , if up to 50% would eliminate the max shortfall. Is that sort of rate possible ?

Is there a reason why an increase in drilling intensity wouldn't increase the conversion rate ?

While the ORG presentation highlights how well CSG converts to reserves better than conventional gas there can be discontinuities and other factors that can disrupt it and make such straight line estimation look foolish.

It is a problem which must be focussing the minds of those in the GLNG project.

STO has many gas options one of which is ESG . If they have a 5 train site and a pipe that be pressurised to handle the feed for 10mtpa (3 trains) that gives you an idea that they reckon that 10mtpa worth of gas is easily available to them locally from a variety of sources , including from a consolidation surplus. If the Gladstone drama was reduced to 2 sites then there would probably be a surplus of gas available. The Game is still in progress. The extra 2 trains to bring the site to 5 must be allowing for that Shale gas that BPT have tucked away in their Nappa### trough.


Cheers