mel, erm power and macgen, page-2

Luke I was initially going to respond to your post on the “bg” thread; but this is probably more relevant.

I sincerely wish you luck on your bg/WCL bet, but in my opinion WCL does not have a significant advantage (if any) over MEL as a potential supplier of third party gas to the LNG projects. Certainly not the two to one ratio that the market has them currently pegged at. Several different groups have spent lots of money trying to make a go of the WCL Meridian field with limited success, while MEL reserves are still substantially unexplored and unknown. And there are several positives with MEL not the least the conventional potential. Anybody who wanted to negotiate with MEL at its weakest would do so now before Rosella was drilled, which is likely to be over the next couple of months.

Any potential purchaser worth his salt would make sure there was some competitive tension when purchasing additional supplies. So for that reason alone I think any LNG project considering purchasing gas under a long term GSA from WCL would also be talking to MEL plus others.

But as I said early on I don’t really see why MEL would be as interested in selling as WCL, since MEL has a stranded local market where it can probably achieve net back pricing more than 50% higher than they would if the gas was sold into an LNG project. And MEL would retain control of its own destiny in the case of local sales.

So I don’t expect MEL would be beating down the door of the LNG projects looking for a gas sale. It is more likely to be the other way round.

And you are right to raise your question, as I think, outside of a GSA to one of the LNG projects, there are a couple of interesting possibilities for MEL in the short term.

One I have mentioned before is some form of tie up between MEL and WCL. The combined financial muscle would help them both. MEL currently has no staff, so, except for an MD, there are not a lot of egos to get in the way. And from some of the posters to both the MEL and WCL forum, I believe that at least one of the parties has had a quite serious look at this.

The other interesting one is through the EPW association. If EPW are successful in their MacGen bid they will need as much cash as they can lay their little hands on. They have already said that they want to divest their gas business which consists of various interests in ROG, MEL and EGO. Currently they are sitting on a substantial loss on all these investments. So packaging them up in some attractive format and getting it to market, will take on some urgency. It is also worth noting that EPW currently control the Board of EGO and the current Board at MEL is only in place due to the support of EPW. EGO has no cash and lots of interests and MEL has some cash and been saying for some time that it wants to get out of NSW. So MEL farming into some of the EGO assets could look good to the market. It would probably rerate both EGO because it now has cash, and MEL because it has a potential growth path out of NSW. The ROG assets owned by EPW could be folded into the group making it just a little bit larger.

So if MEL Board and management are half smart they have at least five options to lift their market profile and price over the next couple of months: -

Local GSAs

LNG GSA

WCL/MEL merger

EGO farm in

Conventional drilling

And EPW would be the key to the EGO farm in.

So again good luck on your WCL/bg bet, but I still think MEL is in the better position.