why new drilling for market-constrained esg?

As mentioned before, I wrote to David Casey with the following question:

""PEL 238 has an awful lot of gas in contingent resource - 3,053 PJ of 2P and 6,128PJ of 3C - which is market constrained. So my question is, why is ESG doing so much drilling of greenfields prospects, when current resources seem to be more than enough for even the most optimistic of reserves aspirations? Does this imply that you believe PEL 238 can book reserves (find a market) for 8,000PJ of gas, and then still more gas is required? If so, that is both astonishing and exciting!"


Have a listen to DC at the HK conference. He talks for some time about transactions in QLD, and how transactions USED to occur on a 2P basis, and then a 3P basis. But what happened was, due to the size of the transactions, they began to be measured on a 3C basis. This was not a silly way to justify over-the-top prices. It was because the PURCHASERS were so large that they had the wherewithal to BE the market of themselves. The smaller companies had the RESOURCES, and, once purchased, became their RESERVES. It is mainly about the commerciality. And if you are a global LNG exporter, or even a massive 'domestic' vertically-integrated utility/energy company, you can turn a contingent resources into a reserve, BECAUSE YOU CAN.

So the answer to ESG's frenetic pace of greenfields drilling is, I think, twofold. ESG are highly confident that either THEY can find a market for their current 8,000PJ of 3C+ resource, OR, they know that a potential purchaser will value ESG on a 3C basis. Either way, it shows they are highly confident a market will be found.

The other thing it demonstrates is they are in one big hell of a hurry. As pointed out before, resource drilling is not keeping pace with step-for-step market developments and the requisite infrastructure - it is out-stripping it. The other conclusion we can draw from this is that, for a company of ESG's size, (who if they were to go much further with the development of this huge resouce would be CAPITAL-constrained), they realise they are firmly in the sights of the big game hunters, and so they NEED to hurry! Time is their enemy. And if their plan was to go it alone, such wanton spending on more greenfields driling, when so much of their gas is market constrained, would be wasteful, unnecessary, and costly.


So, that is my theory folks. I hope it makes sense. 8,000PJ is the current number. Forget about the 2P and 3P to a large degree. That is for another owner to certify. Go back to the previous transactions, work out the acquisition cost PER KJ OF 3C, and BEGIN your revaluation of ESG at 8,000PJ. As a starting point. Because the actually resource, whilst yet unknown is much more massive than that, and will possibly be the biggest in the sector.

Time. That is what ESG needs and does not have, time.

Y