A few interesting questions asked here!TRGunnedah Basin pivotal...

A few interesting questions asked here!

TR

Gunnedah Basin pivotal issue for move
Barry FitzGerald
July 19, 2011

SANTOS was always going to acquire the rest of NSW coal seam gas (CSG) group Eastern Star Gas following its initial foray onto its share register and its Gunnedah Basin project in mid-2009.

But it has been able to do it a whole lot cheaper than it would have originally thought possible, thanks to the rise and rise of the environmental debate on the use by the CSG industry of hydraulic fracturing techniques to liberate the gas.

The general sell-off in equities has also helped the Santos cause.

Before Santos did the obvious by making the Gunnedah its own, Eastern Star was a 59.5? stock.

That is down a thumping 36 per cent on Eastern Star's 52-week high in September last year when it traded at 93.5? a share.

So it is not that long ago that the imputed undisturbed value of the Santos scrip offer of 90? a share did not have the generous glow that Santos and Eastern Star were happy to talk up yesterday.

Good luck to Santos, and its incoming partner in the Gunnedah adventure, power generator TRUenergy, which is to become a 20 per cent partner after reimbursing Santos about $284 million for its initial move to full ownership of Eastern Star.

The funny thing is that if the Santos move on Eastern Star was so obvious, why did the market let Eastern Star's value slump so badly in the past 11 months? Again we get back to the environmental battle the CSG industry faces and the general market sell-off.

Throw in the fact that Eastern Star's plan for a gas export project at Newcastle was going nowhere fast and that there was a heavy capital expenditure commitment required to confirm the Gunnedah's ability to deliver its 2 trillion cubic feet-plus gas resource to market, and the reasons behind why Santos struck now are clear.

But the move on Eastern Star is much more than a simple market opportunity.

Santos's Gladstone gas export project- the group's flagship - was short the resource base needed to support a full-blown two (processing) train development.

The mop-up in the Gunnedah provides a fix for that shortcoming, albeit one that first requires a northern pipeline link.

It was a critical issue if Santos wants a fuller market valuation placed on its crossover into the higher-priced market for export gas.

If it does not get that some time soon, it could be on the receiving end of a bid itself.

http://www.businessday.com.au/business/gunnedah-basin-pivotal-issue-for-move-20110718-1hllm.html