a $48 million dollar question

From 1 January 2010 to 31 March 2011 ESG has spent $41.3m on exploration and evaluation.

I'm assuming not much of this expenditure related to last reserves upgrade as most of the work was done pre 31 December 2009.

For the quarter ending 31 March 2011, ESG spent over $7 million dollars on Exploration and evaluation.

If we assume a similar amount has been spent in the June quarter, ESG has spent approximately $48.3 million.

For this expenditure ESG has produced no reserve upgrade. There's been some evaluation work on contingent reserves and resources.

We have David Knox stating that 50 cents is a fair value for ESG's 3P reserves with no mention of the pending upgrade.

The $48 million question is what size reserve upgrade are we going to get for exploration and evaluation expenditure?

We have some hope that the IER will increase the offer price.

Thanks to Hardmano and others for their logical assessment of the state of play.

The IER

The purpose of the Independent Experts report is to advise shareholders whether the Scheme of Arrangement (SOA) is in the best interests of ESG Shareholders.

The expert can conclude that the proposal is not fair but reasonable and in doing so conclude that the proposal is in the best interests of shareholders.

IER Valuation

Share Market Trading

The valuation methodology applied to ESG will be very similar to that applied to Arrow. As ESG has no trading history it's an unfortunate reality that share market trading of ESG's will carry substantial weight in determining the value of ESG shares for the purposes of the IER.

Of course the predator and its advisors were well aware of this and the long campaign culminating in this SOA commenced at least 18 months ago.

Such a "long campaign" begins by erecting Chinese walls (firewalls is a more appropriate term) between the predator and an array of players to carry out the short selling campaigns stretching as far as engaging irrationally negative bloggers on share forums.

Without doubt the job of keeping ESG's share price down has been relatively easy given sovereign debt concerns, the US economic malaise, RSPT?s, carbon tax and environmental opposition to the industry.

Without going further into the valuation complexities, we'll need an absolute cracker of a reserves upgrade for the proposal to be considered less than reasonable.

The tragedy is that the reserve upgrade is the only ammunition we as shareholders have left as the ESG Board has stopped punching.

STO seemed to have made the 3P 50 cents per GJ the basis for explaining why the proposal is fair. It's hard to imagine we'll get less than gross 1,000 PJ of 3P for our $48 million.