reserves, metrics and gas prices, page-28

PP,

What I cannot decode, and it may be that you left this condundrum for me to worry about (and lose sleep) like a programmer leaves an "egg" in his code for the diligent user to discover, is the figures you mention "1,000 2P suddenly becomes 670 2P" a nice 2/3 ratio. Do you mean that every 1000PJ that AOE had certified should really have been 670PJ ? This would definitely boost the Metric upwards. I am not trying to be obtuse but I struggle sometimes.

Of your Comforts :-

1a. I agree - the reserves should increase with new market opportunity

1b. I disagree as I reckon the Shell-AOE Metric $0.60/GJ 3P had the LNG market assumptions fully absorbed into it.

That was a takeover situation as well with a control premium built into the offer price. The market "Knew"(pre -AGM) that an ESG reserves upgrade was due so the recent 1mth VWAP held at about $0.85. In addition with STO holding 20% the Market "knew"(pre-AGM) that with STO said to be short of gas for GLNG that a takeover bid by STO was probable. At 1mth VWAP $0.85 with 1023M shares this gives $869M. Now assuming our generous takeover premium of 40% the $869M x 1.40 = $1217M. So at a takeover the price offered may be $1217M. Working backwards using $0.95/GJ for 2P , and $0.60/GJ for 3P gives a pre-AGM Market assumption of the Reserves upgrade to give totals of 1281PJ 2P and 2028PJ 3P. Again the AOE metrics are a reasonable basis as the probable use of ESG gas for lNG is known, not a surprise.

The market probably expected,and built into the 1mth VWAP, that 2P would be revised upwards to about 1281PJ (+30%) and 3P to 2028(+12%). Also built in was some degree of Takeover expectation.

Post AGM these drivers seem to have dissipated a little.

- With the ESG Reserves upgrade delayed to early 2011
- STO seeming to be more comfortable with ESG stand-alone and maybe less likely to launch a takeover and mainly because it has a big capex to raise so hasnt the money available
- STO's confidence that it can source gas from anywhere in the general QLD area to meet Train 2 needs.
- ESG Seam water Pumping capacity problems revealed

Key question I am mulling over is ? - If the above are behind the price falls in the last few days post-AGM are the Shell-AOE metrics applicable especially in the scenario that a Takeover may never happen? What would the Metrics be then ?

Who gives a hoot about metrics anyway as they are calculated ex-post.

Your idea is better - What would be the net worth to ESG of your speculated 2000PJ GSA to a LNG gate?


DC should ensure we get a Oil-linked pricing formula for our gas.

When STO announced 25/10/10 that 750PJ would be supplied to Train 2 by the Cooper Basin JV of which BPT has 20.21% or 151.57PJ its sp rose by 7.38% or about $49M or $0.32/GJ. So if ESG trading last at $0.775 for 1023M shares got a 2000PJ agreement for the narrabri CSG JV , like BPT its sp could rise also:

(2000 x 0.65 x $0.32)/1023 = +41cps giving a total of :

$0.775 + $0.41 = $1.185ps

(It is uncanny that this figure is almost identical to the calculation using the figures derived in the takeover scenario a few paras above - $1217M/1023M = $1.19ps. I could conclude that 65% of a 2000PJ Oil-price linked supply agreement is Equivalent to a takeover at a 40% premium to the 1mth VWAP)

Seems a huge jump in sp but 2000PJ is a fair bit of gas. What about pipeline , field development which are already covered in the Cooper JV . Those infrastructure costs are required to be expended by the JV and would likely reduce the ESG sp rise. Even so the thought is tantalising. I am rapt about the prospect.


2. Likely to be right also - good permeability, no need for fraccing, multiple laterals from one pad


Sorry for the long post - but I mostly agree with you - 2/3 anyway :)


Cheers