credit suisse report worth a look

On website along with RBS update. Same caveat that CS were underwriters. Worth a read particularly on possible offtakers for NLNG (Asian) and where STO fits in to this scenario (see below)

Some interesting comments from CS:

"We note that the current share price is readily supported within our valuation by the company’s domestic power generation options of which there are two readily deliverable gas MoUs. As such, we see hold to our premise that the share price offers a ‘free option’ over a
positive Newcastle LNG outcome, over which we are becoming increasingly confident."

And:

"We see ESG as a potential corporate play

We commented in our 2 August note, that notwithstanding the project opportunities unfolding for ESG, the stock has significant attraction as a corporate play despite our view there being only one natural buyer…Santos (which already holds a c.19.9% stake in the company).
We again highlight our view that there continue to be a number of strategic reasons why such a scenario makes sense:
?? It is still about control of gas and even though STO is a 35% JV partner and holder of c.19.9% of ESG stock it does not ‘control’ the gas and ESG is free to pursue
commercial opportunities independently;
?? The Cooper Basin is declining with costs increasing and deliverability falling and at some stage STO will require an alternate source of gas to supply into its Sydney
markets and to pursue potential additional NSW developments;
?? If STO does not at least participate in any successful ESG developments then what does it do with its gas? A 35% stranded CSG resource is technically difficult and expensive;
?? We believe there will be some form of direct NSW-Queensland interconnect, which will make the Central Qld-northern NSW gas areas effectively become one very large gas hub. It will still come down to controlling gas in NSW where there are very few participants, for gas management, swaps and potentially supporting larger scale LNG projects.
We believe there is still some concern with regards to reserves certainty and cover for G-LNG so landing NSW gas at least at Wallumbilla, we think can be a cost effective
way of adding resource to G-LNG…but to do that STO needs to control (by ownership or contract) 100% of the gas; and
?? Now, with positive progress on N-LNG (albeit at an early stage) there is an opportunity for STO to realise a strategic and diversification advantage by holding the only project in that area; and most certainly assist in avoiding the problems that will be associated with
the crush of developments looking to get into the ‘same time and space’ in Gladstone.

We see no downside here for ESG as N-LNG and its domestic development options provide an independent platform to pursue a growth strategy. Any possible deal with STO
as a partner in N-LNG or seeking gas control simply adds project and economic credibility to the resources.
We see this scenario as net positive for STO as well, particularly in terms of offering an opportunity for diversification and growth; and as a potential means of securing reserves cover and flexibility in gas handling and management."


Some VERY interesting comments on why STO may want control!

H