the catch-22 of reserves and takeovers, page-5

Ezirida,

I think you are way off the mark with your 30-60% increase in 2P reserves. (But, as Jumpstart pointed out, if that is the expectation of some, all the better - it will mean a much bigger surprise to the upside when the reserves upgrade does come out).

Here is why I believe the coming reserves upgrade is going to be far more significant that that. The key is the current 2C resource.

This 2C resource is just market constrained. What we need to upgrade the 2C to 2P is just a market; an LNG market. You do the math - all of that 2C amount (just short of 3,000PJ at a project level), becomes 2P reserves with demonstration of an LNG export market. Be that LNGN, or sales to GLNG. Either would do from a reserves perspective.

And on the technical side, we current have a 2P reserve that is based almost entirely on the Bohena seam, with a small amount from the Namoi seam. Add 18 months worth of extra pump data (interrupted); add data from Tintsfield, accessing the Hoskissons seam for which there are no reserves booked (so, all upside). And then, consider that the current 2P reserves are based on a low $3.50 domestic cut-off (unlike Arrow's 2P reserves which had a $9.00 cut-off!).

So when you demonstrate a large LNG market for ESG's gas, you do a number of things:

- Release the market constraint of that 2C resource, allowing it to be upgraded to 2P. Up to 3,000PJ of 2C at a project level moves across to 2P (adding to the current 2P reserve).
- Increase the cut-off price that is used for the reserve certification. What is economic at $3.50 and what is economic at higher LNG cut-offs are two very different amounts!
- Add a completely unbooked seam to the 2P reserves.
- Add in data from Bohena and Namoi from the last 18 months.

Expect a modest reserve upgrade if you want. But I think the evidence points to an upgrade that is far, far more significant.

Yaq