ESG current 3P reserves are based on the domestic commercial...

ESG current 3P reserves are based on the domestic commercial leads that ESG has established up til the end of 2009 - ERM Power, National Power, etc.

And the merger deal is being justified on the basis of that 3P number - so, $0.50/GJ of 3P is been considered fair by the ESG Board such that they recommend it.

So, what this really means is that ESG is willing to sell themselves on the basis of their last reserves upgrade, the one to the end of 2009. They are happy that, whatever 3P they had achieved up to that point is an appropriate valuation. Anything after that date, anything that has happened in the last 18 months, does not count toward the sale price.

So, all these subsequent events and factors, in the opinion of the ESG board, should have no bearing on the merger price:

- The Carbon Tax and the creation of a new gas-fired power sector (imminent)
- Changes to LNG demand due to the Japanese Earthquake, Tsunami and Nuclear Distaster
- LNGN and feasibility study. None of this work is given any value by ESG, as the merger agreement excludes any LNG market in the valuation
- Supply of gas into QLD. Despite the obvious demand for extra gas and diversity of supply, ESG are happy that no consideration be given to these markets. None.
- What Santos would do with the gas.

Has anyone stopped and considered what Santos are actually going to DO with the gas?

- Will any of the PEL 238 gas end up being exported via GLNG to Santos' partners? (And if yes, why doesn't ESG want any recognition of this in their price?)
- Will any of ESG's gas end up being used by Santos in gas swaps, to take over Santos' domestic commitments, freeing up more gas for GLNG?

Remember what Santos said on HC - we want to use Gunnedah gas for GLNG. Santos, the buyer, tells everyone that they want to use ESG's gas for export. And yett, ESG is happy with a valuation that excludes any export markets. Interesting.

Santos: 'We are going to buy you out, and then use your gas for the LNG markets we have lined up already. But we won't pay you for this, and will only recognise your 'moldy MOU's' in the merger price'.

ESG Board: Yes, that is okay, no problems. We know our gas will quickly be sold to your Asian partners for a 3rd Train, and for all the new gas-fired power stations that are about to be built, but you can have that gas for free. You need only pay us for our current 3P.'

Santos: 'Cheers guys. We owe you one.'

What ESG tell the market in late MAY (so, whilst the merger would have been under negotiation):

"Uncertainty remains, however, in relation to electricity pricing, given the lack of clarity surrounding the proposed carbon tax, and its potential to materially affect the attractiveness and pricing of gas.

When it comes to marketing decisions, we won't rush. We have time available to undertake a careful and deliberate process that secures the best options.

When we identify that the time is ripe to act, we are positioned to do so quickly."

And, we get an agreement on the Carbon Tax. It is about to be legislated. And ESG then ACT. What do they do?

Are they auctioning themselves, or did they just give up on threshold of a large new industry?

SUSPICIOUS. It continues to be hard to believe this 'deal'.

Yaq