$1.6 billion offtake agreement, page-39

db says:

"it is $4/GJ gross revenue estmate and the netback would be generous at $1.50/GJ - so gross profit would be at most $30M/yr -- not much for a company with such a BIG market cap."

True. If only 7% of the current 3P+3C were ever sold, and domestic gas prices remained at $4/GJ, then this would be a very poor return indeed. But, all of these assumptions are false.

- this is the first of many deals. This is a deal to sell only 7% of 3P+3C. Please consider the potential revenue from the other 93% of ESG's current 3P+3C.

- domestic prices of $4/GJ will rise to LNG parity prices, as Origin (as many others) have said.

- as gas prices rise to $5 or $6/GJ+..., db's $1.50 netback becomes $2.50 or $3.50/GJ. That is, $50m or $70m gross profit per annum. Note how sensitive the gross profit is to rises in gas prices.

- also, the 7% of 3C+3P is a moving target. The current resources are based largely on one coal seam. ESG have 3 seams, all of which have production pilots running on them. So look for that total resource and reserve size (and hence the potential sales), to rise even further. So that 7% will become a smaller percentage of the total in situ gas.


We need only remember the recent deal between QGC (now BG) and CNOOC. This was over $50 billion, based on 3.6mtpa - a size resource that ESG is easily capable of delivering.

I agree with db76. Baseless ramping is to be avoided. But most people on this thread quote quite a bit of evidence to back up their bullish outlook.

The only thing that is not backed up by evidence is why db76 spends so much of his time downplaying the value of ESG, when ESG is such a small and 'speculative' component of his holdings. Perhaps THAT is the anomaly that needs explaining...

Y