Hi P, That's what I am thinking. Local energy analysts really have been too lazy IMO. I was astounded that one analyst called Chevron's deal the other day a bit of a "scientific experiment". The analyst could not understand why Chevron would get involved in dry gas/high cost shale gas wells in the CB. Poland was put up as an example where shale gas hype did not match reality and Exxon walked away. To counter that argument - you'd think one could logically argue that what was seen in US shale is unlikely to be unique to the US. I suspect that the analyst's "green" credentials is standing in the way of rational analysis.
Really IMO there is only Buru left standing with the most advanced exploration and size acreage to interest the big guys. Shell, BHP and WPL look the most likely contenders - I think could be problematic with Shell given their floating LNG ship aspiration.
With BHP - probably same with most other giants - ego stands in the way when it comes to investment proposals put up to the board. A $20 billion has the macho "wow" factor never mind that it is likely to be a marginally successful investment at best. I suspect that a 1/2 billion investment proposal in the Canning basin over a longer term with a chance of multiple times investment return proposition just does not fit the time frame of an aspiring future CEO of BHP.
Perhaps, just perhaps - the ground have shifted a bit lately. Notice the change in CEOs at the top mining companies and soul searching among gold companies - making a profit and paying a dividend is apparently now the way to go so we are now hearing. A seismic shift in thinking is needed before BHP will likely buy itself a seat at the table with Buru and Mitsubushi. Surely they must have woken up from their slumber to see PC - a giant - bothering to get involved in grass roots Canning Basin. And now there is Chevron in the CB. Scientific experiment???
Seriously, a $500 million investment into the Canning Basin plus a $500m exploration spend over a 10-year period at current 10 year borrowing rate equates to a future cost of only circa $1.5 billion. The potential payback in TCFs/condensate/oil is mind boggling!
And if you should see BHP ponying up $20 billion for another mature shale play in the US or similar - just sell all your BHPs. You'd crazy to invest in a likely low margin manufacturing business - that's what it is that BHP is doing.
On my estimates - unless the farm-in deal is at least circa $400-$500 for 20% of the Buru/Mitsubishi - it is better for Buru to issue a few shares at a time to meet funding needs. Another possibility is to pay circa $600m quickly to snap up half of Buru and therefore exposure to 25% of the JV.
Just IMHO - I won't know any more than you do.
AND ... don't count Chevron out of a Buru/Mitsubishi deal.
P = patience! GB
BRU Price at posting:
$2.44 Sentiment: LT Buy Disclosure: Held
