comparative value

Following on from the metrics Hardmano pointed out on the takeover prices for Sydney Gas, and AJL's Gloucester Basin assets... some more inferences:

If we assume that ESG WILL certify 1300PJ 2P (845PJ to them), and compare ESG's market price to those metrics...

AT ESG's current mcap of $675m = 79.9 cents per KJ

This is only 38% of the AJL metric, and 19% of the Sydney Gas takeover price. ($2.17 and $4.11 respectively)

Think about that. This is the same NSW market. ESG is trading at around a third of the AJL metric, and one fifth of the SGL...


Then consider the very real possibility that 2000PJ 2P (1300PJ to ESG) could be certified this year:

This gives us a current metric of less than 25% of the AJL price, and less than 13% of the SGL price.


Now, these are forward-looking metrics. ESG has not yet certified 1300PJ or 2000PJ 2Ps yet. So we are comparing the CURRENT market price for ESG with (near) FUTURE certifications.

But that is how the market works - you look at current PRICES in relation to future VALUES.

So, if you are considering buying ESG or HGO, you can wait until the formal 2P certification comes through. There will be a massive rerating, and you can then buy.

Or, you can assume, based on ESG's continual reaffirmation of the 1300PJ 2009 target, that it WILL happen, and apply that value to the current market price.


What this makes clear to me is that the market price for ESG has not anticipated what will be a massive change in the fundamental value of their (soon to be booked) reserves, and is still looking backward at the current 2P, which is hopelessly out of date.

Happy researching...

Y