perspective, page-24

"The missing ingredient for ESG's share price is short to medium term commercialisation options. 2015 is a long way off.

Wilga Park development has been tardy at best (perhaps linked to issues with Production Pilot gas extraction?) and ERM's potential GSA won't be a producer for years.

What can they do short term to build incremental value (from a cashflow perspective)?

JT, some thoughts on your good questions:

I don't think companies like ESG aim to be profitable or cashflow positive in the short term. The aim of the game is to add value via resource and reserve upgrades, commercial deals, such that further capital can be raised to improve the asset values. Most large developers in IO are in the same boat. These are massive and bulk commodities were are talking about. Cashflow is years away. So the aim is to add value to the assets, prior to an eventual asset sale or monetization when the project(s) finally comes on stream.

Wilga Park, when it is upgraded, will add cashflow. But Wilga Park's benefit is to provide some cashflow that would otherwise go up in smoke, literally, as full-field development ramps up. Some monetization here is all a bonus, not an end in itself.

It seems to me that ESG will be looking to get extra cash in the door to fund full-field development via the sale (partial or full) of LNGN, and an equity sale of up to 14.9% of PEL 238. These funds will be used towards field development, ramping up to supply ERM power, which will in itself be a very profitable supply deal. And this coming supply deal provides yet another stepping stone to the even larger gas supply deals - to either LNGN or one of the other QLD LNG projects. But the money is always ploughed back into development.

This is exactly the same model as has been used in GLNG. Santos couldn't do 100% of GLNG itself. But as long as there is more value added to project than the cost of the capital require to fund that growth, then progress is being made. But it is growth in asset values, not creating a near-term cashflow positive business.


ESG is, and always has been, an asset rather than a near-term income buy. And what 'income' is raised is ploughed back into growing the business.

(And, in all likelihood, ESG will go up the foodchain before that happens anyway. There are just too many hungry projects around. Big resources have an uncanny knack of getting together with big capital.)

Yaq