Last night I was thinking about what ESG was saying in their OB....

Last night I was thinking about what ESG was saying in their OB. One of the main messages was this:

We are going to have a reserves upgrade in August. But we won't be hurried into signing any GSA until closer to FID in early 2012. So there will supposedly be this period in which ESG has booked huge reserves, but where they are refusing to sign any GSA's.

Large reserves and commercial flows confirmed in August - no GSA's until early 2012. That is the window.

Ok. But, are Santos and GLNG going to be happy with that? Knox has already said they want to use ESG's gas to supplement GLNG. And ESG is saying they are not going to be hurried into signing anything, and aim to allocate that gas to LNGN as their first preference. Is this what Santos wants?

Somewhere, there is a GLNG project manager, in control of a $16 billion project, with a large gant-chart, sweating over Santos' reserves progress and field development, and praying for no more rain or other disruptions. He and many others at Santos probably thought the ESG issue would be well and truly sorted by now. But gas remains the biggest single risk to GLNG meeting their commitments.

ESG, particularly after the next reserves upgrade, will be 'bloated with reserves', but (apart from WP), absolutely no sales agreements. Incredibly big in terms of reserves, and yet not a single joule of gas committed in a GSA. ESG has kept their 'optionality' wide open, and not committed to any small deals.

Reserves> Infrastructure> Markets - they are the three legs to ESG's stool.

Doesn't it strike anyone as odd that the reserves are already extraordinarily large, and about to get larger, and yet ESG baulk at signing ANY of the gas to any other parties? Doesn't that stool seem a little out of balance?

Does this seem like the behaviour of a company who is keen to commercialse their resource (or even part of it)? Or does it seem more like a company who is going to orchestrate a bidding war?

Early 2012, huh? Does anyone think Santos and friends will sit around until ESG has all the approvals, and will only act when ESG pulls the trigger on LNGN? So, wait until ESG has lined up a non-GLNG option, and only then act?

ESG is a big, fat reserves-bloated company, about to get more bloated. Why buy the cow when you get the milk for free? So, ESG isn't selling any milk.

Yaq