my view, fwiw

WARNING, LONG POST.

The market heard only one thing today, like a dog listening to his master:

"blah blah blah ... DELAYS blah blah blah ... NO RESERVE UPGRADE THIS YEAR blah blah blah ..."

I guess the sell off on a green day, on small volumes, is to be expected, and has disappointed many shareholders. Fair enough too. ESG have not been exactly proactive in telling shareholders bad news.

However, all that said, there was some good news, and that is how rapidly flow rates rise when the pilots are brought onto pump. It seem these things are a real Pandora's Box, once uncorked. Open them, and you then have the task of how to deal with the water and gas alike. Currently, they do not even have the capacity to monetise all the gas from these two pilots through Wilga Park! So, there are bottlenecks and constraints. Remembering that these are only pilots - a 'proof of concept', aimed at increasing reserves and showing data to commercial and corporate partners.

ESG are not showing the sorts of forward planning and long-termism one would expect of a company hell-bent on remaining an independent producer. Government slackness or not, ESG seem to be doing just enough to demonstrate the reserves and flow rates to certifiers and customers alike.

If I didn't know better, I would say that ESG aren't planning to be here for a long time. Much of their behaviour, including the non-upgrading of WP, and the lack of investment in other long lead-time items suggests a short-term focus to me.

Can you imagine the logistics of running a full-field development, and feeding a large LNG plant? A hell of a lot more difficult than running two pilots! So it appears that ESG are doing just what is required to achieve their corporate goals. Just the bare minimum.


Before today, we already knew Tintsfield has been delayed, so no surprises there. What is interesting is that ESG have decided against giving an upgrade based on the Bohena and Namoi seams. One can only assume this is for strategic/defensive reasons.

Because the reserves will have risen from these two seams. But ESG has chosen not to tell us how much.

ESG's 3P reserves will have risen substantially - due to ESG's greater commercial certainty, the strong demand for gas in the whole sector, and based on the greater certainty due to the Fed. Gov. approvals of the other LNG projects.

So, there is a 'latent' increase in reserves this year. Just not certified and announced to the market. That is different to 'no change'. ESG just hasn't pulled the trigger and asked NSAI to do an update yet.

You can bet your boots that if a bid lobbed, a reserves upgrade from the Bohena and Namoi would appear pretty darn quickly.


I read an older ESG presentation yesterday that said that the Bohena seam represented 85% of the known gas in the field. So Tintsfield and Namoi combined represent only 15% of the GIP. So, there is a hell of a lot more reserves to be upgraded from the Bohena than from the Hoskissons seam in totality - even though nothing is yet booked for the Hoskissons seam yet (the seam the Tintsfield pilot is accessing).

So, it is a little surprising that ESG say that:

"The results from this pilot are the major component of the 2010 gas reserves upgrade programme."

It looks to me that ESG are holding back the data, particularly from the Bohena seam.

So, Santos may have to wait a little longer, as ESG seems to be running the timelines. ESG certainly are not behaving like a company throwing everything they have at the market. ESG must feel pretty secure in not being threatened by a predator being able to be take them out cheaply.

Yaq