well, the people who subscribed for the CR at 18c seem to be cashing in the profits? And now the Bots are having a go.
well, I say keep selling, because the more they put pressure on the SP, the higher the probability of a t/o imho.
AT SOME POINT IT WILL MAKE BETTER COMMERCIAL SENSE FOR GLNG OR SANTOS, TO BUY OUT THE MIDDLEMAN (IE WCL) !!!
*************** (extract only) Citi Research LNG Landscape 14 March 2014
We think LNG projects will remain in market for vols longer term: Despite two of the three projects (potentially all projects) not needing gas to meet contractual obligations, we expect to see projects look to maximise capital efficiency by buying gas on long-term supply if it is available and cheaper than developing own resources. Such a decision should be seen as prudent use of capital by investors, but we would not be surprised to see some focus on the negative.
On our detailed modeling of GLNG, we estimate that if the JV stopped drilling in CY16, and instead could buy gas at ~A$7/GJ real (to offset field decline) it would be NPV neutral (IRR 10%). In this scenario the JV needs to make a return for the upstream processing infrastructure on less gas molecules. We think is unlikely, and project will continue to drill wells to fill upstream capacity.
Higher domgas prices to be underpinned by ongoing market participation — We estimate it is DCF neutral (10% IRR) for a project like GLNG to buy gas at ~A$7/GJ and offset drilling, buy gas at ~A$8/GJ to delay developments of new fields (ie Arcadia CY19), and DCF neutral to buy gas at ~A$12/GJ to back-fill when reserves decline. While short-term ullage in LNG facilities may see gas spike to A$10-12/GJ for 12 months from 4Q15, we think gas prices will return to ~A$8/GJ longer term, in the absence of material new volumes of cheap gas and/or material high price demand.
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what I think is important, is that there must come a point where it is cheaper for STO or GLNG to takeout the middleman, WCL, and direct the margins WCL would make, into the coffers of STO or GLNG.
What Citi is saying, is that even allowing a 10% return for GLNG, when GSA prices are at $8/gj, it is cheaper for STO/GLNG to buy the gas from 3rd Parties, thereby preserving the GLNG capital. That capital would otherwise be utilised in developing further fields of their own.
BUT - WCL is to use its own capital and debt, and develop Meridian, and sell that gas to STO/GLNG at around $8/gj. If WCL can get its OPEX down to $2/gj as is targeted, then WCL will be making very good profits and margins from the sale of gas over 20yrs to GLNG.
So at some point, GLNG or STO, will be looking at the fat margins being made by WCL, and watching the SP and Market Cap being eroded, and think this is crazy - it is cheaper to just buy WCL and retain those fat margins for ourselves!
It makes sense. - because STO/GLNG already has technical people to develop the field, and construct and operate the field, - they already own the pipeline transporting the WCL gas, - they already have the GSA in place, and have the off-take risk "boxed" - they can gain some synergies/ cost reductions in managing and operating the field - they secure the WCL gas supply 100%, and ensure no opportunists like Landbridege get control of their precious gas supply - they know how to get the gas to flow, because they have such experience in their other fields - they will have no FIRB or ACCC problems - no problems with landowners etc, as field is already up and running for 15yrs - and most importantly, they secure any gas potentially produced, which is over and above the 65tj/d which is already contracted to GLNG! And I think this is important, because WCL has flagged that Meridian can produce more than 65tj/d, and WCL is the natural acquirer of the Mungi field and other MPO assets near by, plus any Paranui gas next door.
I DO agree with fellow poster Psi81, when commenting that the likes of Santos may be waiting to see what gas flows arise from this about-to-start WCL drilling program. I think we should get some results around Sept?
Anyway, WCL is a much different proposition now, than it was a month ago. It's showing much more "leg", and should be attractive to more suitors.
cheers
WCL Price at posting:
28.0¢ Sentiment: LT Buy Disclosure: Held
