ESG 0.00% 86.5¢ eastern star gas limited

david knox on an esg takeover (from 2009)

  1. 3,666 Posts.
    This is from the same conference call that Ray quoted from, and available on the Santos' website:

    Question from Stuart Baker (Morgan Stanley):

    "I guess the obvious question is 'Why not bid for the entire company today? It seems to me with your position next door, it is pretty logical what you have done... you have a knowledge advantage... I am just curious as to why you wouldn't lock up the entire resource right now given this opportunity - particularly given what we saw in QLD where there were bidding contests, in particular in QGC which unfolded and then obviously ran away.... I just have the view that if Eastern Star proved up their reserves, clearly value would be added, it would be a more valuable company in time, but you can't take out the risk that someone doesn't come in and perhaps bid and outrageous price and get control, in which case you're there as a minority participant, and may not have the right to deal with the gas as you want."

    David Knox:

    "What we wanted to do here is a have a collaborative agreement with Eastern Star. They had two parties who were interested in stepping out, in Hillgrove and Gastar... the ... the opportunity to bid for the whole company was not on the table. We didn't consider it in any way. Obviously by having a 20% working in interest or stake in Eatsern Star we do have some influence, but we are not seeking to use that influence in any way, but obviously we do have some.

    So what we are really doing is... we've seen through our drill-bit and we've seen through Eastern Star's drill-bit that this is a quality resource, and we wanted to get involved. We are also building on our previous experience in QGC... Ithink it was before my time, back in 2006, when we did go for the whole thing and we were unsuccessful, and ah, in this case case we wanted to have a very successful outcome, and so we work collaboratively with them.

    So it is not our intention to go for the whole company at all... we've got what we wanted which is a ... a really er access to their their programs, and ultimately, we may be able to combine our operations... the one that we're doing in our blocks, and their operation on their blocks, and that is something that we can discuss with them going forward now. And it is being done very collaboratively which is my style."

    > My comments:

    (1) Knox stresses that Eastern Star was involved with the process in which Gastar and HGO stepped out and Santos stepped in. ESG were not a passive spectator in these deals. In fact, when you have a look at how ESG and HGO managed the dilution down to exactly 19.99% you can see that it was a well orchestrated change of minority holding.

    (2) The reason Santos did not go for full control was, at that time, they were not in the position to do so. They had less cash, non-core assets that needed to be disposed of, had not signed offtake agreements beyond the 1mtpa with Petronas, had not raised the debt finance, had not sold down equity in GLNG, had not received the governmental approvals, and had not FIDed GLNG.

    Now, all those boxes have been ticked by Santos.

    In short, if they had attempted full control back then, they would have been unsuccessful, and "it wasn't on the table". Now, according to the Bloomberg interview with DC, ESG are "open to fair and reasonable offers" - so it seems that a change in full control, at a price, is now on the table.

    (3) I question Knox's assertion about a collaborative approach. We have seen not one shred of evidence of this. No board representation, no JV MOU's with ERM Power, with National Power, and no joint involvement with LNGN. So whilst Knox may wish to give the impression of a collaborative approach, it simply hasn't happened. As such, we can only assume Santos' goals and methods are going to be non-collaborative or hostile. What else can we think?

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