"gas envy", page-6

We need to keep in mind BG has approval for 6,000 wells, Santos 2,650. The projects are similar in size.

Santos has earmarked 750PJ from Cooper to supply GLNG over 15 yrs. Logically most of this will be supplied during the ramp up phases of trains 1 & 2.

Santos will need gas from sources, in addition to Cooper and their existing QLD/NSW CSG interests, to meet their future domestic committments and supply of GLNG.

Its pretty clear from information released by BOW Energy and others in the industry that STO does not have sufficient reserves to supply GLNG. GLNG will therefore need gas from one or both of the following:

>Independent uncontracted QLD suppliers

>NSW

One way or another GLNG needs ESG's gas for:

1. Gas Swaps (to cover gas redirected from Cooper to GLNG, currently supplying SE Australia's domestic markets), and/or;

2. Direct pipeline to Gladstone.

Why sacrifice upstream profit margin to a third party gas supplier when you can be fully vertical and secure 100% control over your gas supply?

Big company's and big projects must have certainty through control of supply and optionality of supply.

This point begs the question, why has BG entered a Gas Supply Agreement with Origin when it has sufficient reserves? Answer: To provide additional supply during ramp up and to secure an alternate source of supply (optionality).

It should also be noted, STO has multiple gas supply committments whereas BG has only one in Curtis Island LNG.

Finally, if I had to punt on the most likely outcome discussed in the ESG forum, STO will launch a combined bid for ESG with Kogas (and possibly other partners). This will solve their supply and funding issues and lay off the project risk.

It is quite possible that this is the reason for the delay in announcement of STO's mooted offtake deal with Kogas.

STO, Petronas, Total and/or Kogas may be working up a deal whereby they all participate in a deal to acquire ESG and STO's NSW tenements. This deal would take some time to put together.

Hopefully, ESG will announce a deal with Marubeni beforehand to create price pressure.

Good luck.