The market has two concerns with Santos:- do they have enough...

The market has two concerns with Santos:

- do they have enough capital to do what they want to do?
- do they have enough gas?

The capital bit they are dealing with, albeit in a clumsy way. Their CR at $13 - still not announced - is looking more and more like $12. So, I will leave the question of capital and capex to one side.

Securing the GAS: The Catch-22

Here is Santos' big problem. They DO have enough gas for a two-train project. They have rights to 35% of the gas in PEL 238. And there are those who will build the pipeline. And (time will demonstrate) that the full-field economics of PEL 238 are so good that gas could be delivered to QLD (even net of piping tariffs) cheaper than projects in QLD can supply it.

High flows rates + wide spacings + stacked multi-laterals = industry lowest cost per unit of gas.

You get more gas out of the ground, at less cost, than the verticals in QLD. And that, in addition to sheer size of resource, and geographic optionality, is what makes ESG and PEL 238 such a valuable resource.

So, Santos could allay market fears about the requisite gas, but in doing so it gives ESG a free kick in front of goal. So Santos don't want to say that, because they want to ACQUIRE all of ESG. Santos do not want the market to see that ESG has a route to commercialise their gas in QLD. If they did, ESG's share price goes up far more than Santos' would.

WHY do we think Santos spent half a billion dollars on their investments in Gunnedah, and yet cannot mention any commercial plans for them?

It is the Catch-22.

They have a solution to getting the gas for two-trains (and more), but can't tell the market about it!

(It is also worth remembering that Santos has got State Environmental Approvals for THREE trains. Get ESG, and you have enough gas to be THE market leading project in QLD). But, for obvious reasons, they can't further spook the market by talking about 3 trains yet. But that is their PLAN.

There is just one problem... they don't own ESG. They aren't the operator of PEL 238. And hence, they don't decide where the 65% of this massive resource goes.

It may already be too late for Santos. Can they pull out of their downward spiral, and make an attractive enough offer to get control of ESG before ESG's gas is contratually committed elsewhere by the end of the year..?

I doubt it. Snooze, you lose.

Yaq