What We Know

[Tree]

It's time to re-focus on what we know and get off the 'what if's', the 'they should's', the ''why don'ts'.

What we know is good.  TOT/IOC lash up, 30% LNG project  participation, exploration funded, $1.29/Mcf uncapped, Hession & Co. tickled with deal.  The LNG plant will be adjacent to PNG LNG, W of Port Moresby about 20 miles.

What we also know.  Since the IOC/TOT deal announcement, Santos has spoken.  PNG LNG still needs gas and finding gas has been a top priority for 18 mos.  Santos states, PNG LNG has 3 options for feedstock.

1) Drill Hides.  $100,000,000 wells, doubt exists in resource potential.

2) Drill P'Nyang.  Isolated field, needs long pipeline and is not part of Gas Agreement.

3)  Source from Elk/Antelope.  (Now why would Santos mention this still?)

We need IPI transaction and TOT deal to close.  That is first order of biz.

[Getitrt2]

We need also to spud every well as soon as they can get ready. That's right up there with what you mentioned, whether before or after.

[sydbod]

Hi Tree,
" PNG LNG still needs gas and finding gas has been a top priority for 18 mos",
The top priority has been the drilling of production wells for the PNG LNG project, and this drilling is behind schedule. Believe me they have not been madly trying to source up additional gas finds for the PNG LNG plant, they are too busy trying to catch up with production source drilling.

I take it those 3 expansion options were taken from
http://www.santos.com/library/Santos%202...inar_0.pdf
Pg:82
"1) Drill Hides. $100,000,000 wells, doubt exists in resource potential."
From memory, single wells in that area normally take 100days or so, and cost around $30,000,000. Drilling rigs are already located at Hides (for production well drilling) so relocation costs for the rigs would be minimal. Most importantly, Hides Deep will be explored by extending one of the last water injection wells that have to be drilled for the PNG LNG project, so that exploration target will be very minimal in cost but has to happen at the end of the production drilling time in 2014.
Is there gas there???? we will just have to wait and see. How much extra gas exists in the normal Hides field is also unknown as the field boundaries have not been determined yet either.

"2) Drill P'Nyang. Isolated field, needs long pipeline and is not part of Gas Agreement."
Totally agree and personally believe that that gas will head towards another LNG project combined with gas from the south/western region of PNG.

"3) Source from Elk/Antelope. (Now why would Santos mention this still?)"
Could it be that that presentation was released on the 4th December and thus was created well before IOC announced they were not going with XOM anymore? ( EDITED THIS AS I GOT E/A and TRI mixed up)

Another unknown happens to be the Pandora gas deposit.
http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01479710
Only 2 of the targets there have been drilled and the potential exists that enough gas may exist here (yes it is not the purest of gasses) for a train at PNGLNG. after all Santos now owns a part of this field.

There are so many possible reasons and outcomes that you are correct "We need IPI transaction and TOT deal to close. That is first order of biz."

We should not get peoples hopes up too high until we get firmer information otherwise it can again lead to disappointment.

[Tree]

Hey Syd,
You say:
"We should not get peoples hopes up too high until we get firmer information otherwise it can again lead to disappointment."
I agree, that is why we need to focus on what we know.

Wood MacKenzie as to cost of Hides wells: http://shareholdersunite.com/mybb/showth...p?tid=3974

and an Upstreamonline article from Dec. 13th: http://www.upstreamonline.com/hardcopy/n...346372.ece

Bottom line is PNG LNG still needs gas and Santos is reported to consider E/A gas an option, a full week after the TOT/IOC lash up. My conclusion is E/A gas still is PNG LNG's best option for gas based on availability, speed to market and cost.

How is this getting peoples hopes too far up??

[Thylacine-2]

" We should not get peoples hopes up too high until we get firmer information otherwise it can again lead to disappointment.

Sydbod, there is an assumption behind your post, shared by many on the board, that the deal with Total was disappointing.  And that the drop in the sp reflected that disappointment.  IMO it was clear in Hession's CC that we had a great deal with Total, and the selloff was not due to people being disappointed.  It was due to a pre-planned attack.  After the attack was successful, many people then decided the deal was a disappointment.

[j4j]

" We should not get peoples hopes up too high until we get firmer information otherwise it can again lead to disappointment.

Sydbod, there is an assumption behind your post, shared by many on the board, that the deal with Total was disappointing.  And that the drop in the sp reflected that disappointment.  IMO it was clear in Hession's CC that we had a great deal with Total, and the selloff was not due to people being disappointed.  It was due to a pre-planned attack.  After the attack was successful, many people then decided the deal was a disappointment.

i think you summary, unfortunately, depicts pretty accurately what happened.

[admin]

It's difficult what part of the price fall (if any) to ascribe to any attack, planned or otherwise, but there are a few deal items that I think a good many of the longs exepected more off:

1. The $/mcf is simply lower than what many longs (myself included) expected
2. The long time to the LNG plant. Many (myself included) expected a deal with Exxon and relatively rapid gas processing.
3. While this is open to interpretation (in more than one way), the way the deal is structured was communicated it seems to leave open considerable uncertainty about the size of EA and GLJ's assessment of it.

Against that, we have the pleasant surprise of a 30% stake in a future LNG plant, which was much more than many (myself included) expected. The time horizon for that is pretty far out (I included zero value for this in my SA article), but this is very substantial and I think it's something institutional investors (more patient capital) like.

The appraisal of EA will be crucial, as it seems to me the market is factoring in a considerably smaller resource than the current GLJ estimates, and there some obfuscation might very well have taken place (the Total PR), although not necessarily in that, but in subsequent "interpretations."

So, potential upside should come mostly from the drill bit

• EA appraisal
• Drilling new prospects

Good job we're having 3-6 of these drills running simultaneously pretty soon..

[CAC]

[quote='sydbod' pid='35177' dateline='1388158035'] " We should not get peoples hopes up too high until we get firmer information otherwise it can again lead to disappointment.

Sydbod, there is an assumption behind your post, shared by many on the board, that the deal with Total was disappointing.  And that the drop in the sp reflected that disappointment.  IMO it was clear in Hession's CC that we had a great deal with Total, and the selloff was not due to people being disappointed.  It was due to a pre-planned attack.  After the attack was successful, many people then decided the deal was a disappointment.

*********

Perhaps, but even after time passed and the deal details were analyzed and digested...we still don't seem to have much new big-money buying.  It's too convenient to just blame the shorts.  If it was just manipulation that drove the pps to an irrationally low range then institutions would figure that out and be dying to load up at these levels.  

[Getitrt2]

I don't think it was shorting alone, but I think shorts may have been an important catalyst for a panic sell off involving a lot of longs, especially after sellers (shorts?) were able to get a big drop into the early pre-market before the exchanges got the trading halt in place and before the cc.

Even institutions that plan to buy back or buy more or buy may not want to show more in year end data, and probably see no hurry with tax loss selling and the expected basing process. We may see a better tone and some recovery after year end.

[tarulestheday]

I talked to a fundie contact this am and his first response was that IOC was dead money that still had too much risk. There is also the perception that IOC management are sitting ducks for short manipulation. "IOC potential upside is no longer worth the risk."

Can you imagine where IOC would be trading were the overall market not at all time highs?

Management needs to take agressive action soon but I don't believe they will. IOC needs every dime of cash for drilling. Sadly, the shorts will be naked shorting the next drilling report and the longs will once again be stunned that the stock price is not inline with their expectations.

This company will never achieve reasonable valuation unless it is sold or taken private. You will all eventually agree with this but it could take a few more years for it to sink in.