Shell wants 4 LNG Trains, and has enough gas for 1.5 atm.Shell...

Shell wants 4 LNG Trains, and has enough gas for 1.5 atm.

Shell moves on BOW. Not enough to get 4 Trains. A tasty morsel, though.

Santos has 2 Trains FIDed, and is making further acquisitions (ESG). Santos has land for 5 Trains, and Environmental Approvals for 3 Trains.

Santos' current share price does not reflect 2015 earnings. Lots of capex between now and then, and few dividends between now and 2015. Low share price, weak market = vulnerable. Santos' price has been heavily shorted. Santos now starts to talk up the value of their proposed merged NSW assets. And Santos, freed up of foreign owneship restrictions, is at that mid-large Tier size that is just so tasty for Majors.

The Government wants consolidation in the Major QLD LNG Projects, to reduce skills shortages and other constraints. It hasn't happened as yet. The Government also wants to encourage more export sales to China, increasing their revenue and balancing the Budget.

Shell sells down 10% of its Woodside holding, given that it can never get control here. The focus is on its East Coast LNG project.


= Shell makes a bid for the merged Santos/ESG entity. Shell necessarily must spin out some domestic gas and other assets, either to other parties such as Origin or AGK or TRU, or to a new entity. This is to assuage foreign investment concerns, and also domestic competition concerns.

- Shell gets their 4 LNG Trains. Tick.
- Shell buys a derisked LNG project, with land, approvals, customers and equity partners. Tick.
- The Fed. Government gets their QLD LNG consolidation in QLD. Tick.
- The Fed. Government gets foreign investment, export sales and hence revenue to China. Tick.
- The Fed. Government gets protection for local domestic energy supplies and competition. Tick.
- ESG gets a 'kicker' which effectively make the SoA better end-to-end. A sweetener, via a known Santos scrip price catalyst. Tick??
- Santos gets taken out at $20+. Tick.

Everyone is happy? Well, not entirely, but it does make sense. The consolidation predicted in the industry, long overdue, may be just around the corner once the remaining large independents are cleaned up ... Shell-Santos, BG-Origin.

ESG and BOW are just players in a much bigger picture....

Yaq