Santos has significantly increased its commitment to New South Wales by purchasing a 19.9 per cent stake in Eastern Star Gas from Hillgrove Resources, upping its interest in the Gunnedah Basin, west of Tamworth in NSW, and by forming a joint venture with Eastern Star to develop Gunnedah as Australia's next big coal seam gas hot spot. The $176 million purchase is worth 95 cents per gigajoule of 3P reserves, according to Perth-based oil and gas analyst Scott Simpson, of Patersons Securities, which was lead manager for a $50 million placement in Eastern Star earlier this year. The deal also equates to a price of $1 per Eastern Star share and Santos will pay more if any other party buys more than half of Eastern Star at over $1 per share. The joint venture component of the Santos/Eastern Star deal will see Santos acquire a 35 per cent interest in several tenements, including the Narrabri CSG Project and the Wilga Park Power Station, all adjacent to Santos-operated permits in the Gunnedah Basin. Santos is purchasing these rights from Houston-based Gastar Exploration for $300 million. Subject to certain conditions, $280 million is expected to be paid on July 10, with the balance remitted on receipt of certain government approvals. Santos may pay Gastar an addition $20 million will be paid in early 2010 if independently certified gross 2P reserves for the PEL238 permit (which Eastern Star holds the remaining 65 per cent of) are at least 1.3 trillion cubic feet at the end of 2009. Gastar reserves the right to receive all or some of this payment in Santos shares. If production thresholds are received, Eastern Star may pay Gastar an additional $US10 million.
ESG Price at posting:
90.0¢ Sentiment: Buy Disclosure: Held
