for new investors - the takeover case

Given that there have been many new investors joining ESG and this thread of late, I thought it is worthwhile to give a very quick rundown of why ESG will be taken over this year. And probably, sooner rather than later!


- Santos. Has 19.45% of ESG. Probably wants more
- STO spends almost $500m on PEL 238 and ESG, and yet don't bother about a seat on the board... future intentions?
- STO/Petronas do not have the requisite gas for their LNG plans. FID by June 30 this year.
- STO previously missed out on QGC. QGC subsequently signs a rumoured $50-$80 billion dollar offtake deal with the Chinese. Oops.
- STO say they will "not make the same mistake twice" and ESG is a resource to "die fighting for".
- STO refuse to deny takeover speculation. Woodside were quite happy to quickly deny the STO sepculation, however.
- STO have not achieved any offtake deals nor any commercial benefit out of ESG/PEL 238 as yet. So, why buy in?
- STO have just opened a regional office in Gunnedah. Looks like they are settling in, and are not going to divest these assets.

- ALL the QLD LNG Projects want and need more gas to get the desired economies of scale.
- Massive deals and interest from Asian buyers.
- Multi-nats are locked out of most of the world's major gas resources. Australia, the US and Canada remain open.
- Indonesia and Malaysia now running out of gas fast.
- over $30b has been spent on CSG acquisitions in Australia to date.
- After Arrow is taken out, ESG is the large independent CSG resource, and the largest CSG land holder on the East Coast

- HGO expect to get a top-up, after selling their ESG shares below what they knew them to be worth.
- HGO, and Gastar, spoke to MULTIPLE parties about their ESG and PEL stakes respectively

- There is a coming battle between securing gas for LNG export, and securing gas for local gas-fired power generation.
- Gas will and is replacing coal as the lower emission source of power-gen
- NSW privatisation of electricity gen opens up new opportunities for vertical integration.

- 'The Closer', Chris Sadler is brought onto the ESG board, fresh from a multi-party auction for Gloucester Coal, and also Mitre 10. He has no oil or gas experience per se. But lots of corporate M&A experience.

- In 2 years, ESG has chosen not to commit their gas to any one party, thus keeping open their options. "You want it, you will have to take us over.." - this is not through lack of demand.
- ESG holds a dominant position in NSW. This geographic position is key to their appeal to both QLD exporters, LNG exporters interested in Newcastle as a clean slate, and Eastern states power-gen.
- ESG is tightly held by management and large holders, unlike Arrow.
- David Casey says at the AGM that ESG is worth $2.4 billion based on their 2009 target of 845PJ or 2P. 2P is now 988PJ and will rise quickly from here with 4 pilots operating

- ESG have had superb flow rates from their thinnest coal seam, Namoi - 2MMCFD, with an expected peak of 3.5MMCFD.
- ESG has a 'triple-layered cake of coal seams'. Bohena, the thickest, is 5 times as thick as the Namoi.
- The Hoskissons seam, 10m thick on average, covers even more area than the massive Bohena seam.
- ESG already has enough contingent resource to feed a 3.5mtpa LNG project (see the QGC offtake deal based on 3.6mtpa)
- ESG is still doing greenfields drilling to extend their resource further than PEL 238's current 3C+3P of over 9,000PJ. This can only mean they will find a market for 9,000PJ themselves, or find a buyer who has such a market.

- ESG has said they have had "multiple approaches" regarding LNG. Also that they were talking to 2 parties re power-gen MOU's. Taunting Santos to make a bid.

AND

It was reported in the AFR that Santos/Petronas were preparing to bid for ESG. Such a bold statement isn't published unless the sources are good. Probably, ESG is the source, given that they will want the rumours to push the price up, pre bid.


So, there you have it. I have probably forgetten many important points. But, the weight of evidence for corporate action on ESG to "go up the food chain" is overwhelming. Big resources find a home with those with big capital and big markets - not such a shocking concept, really.

It is just a question now of WHEN, WHO and HOW MUCH. NOT IF.

Y