See article below - Santos may consider an LNG plant in Newcastle or pipe the gas from NSW to Gladstone. I thought piping that far might be too expensive but maybe it isn't.

Ok now for a bit of a MEL ramp - Current 2P reserves are around 250PJ, 3P are around 1200PJ. Company is aiming to increase 2P to around 600PJ by 30 June (so they said in a BRR interview a few weeks back).

If you only apply a value of $0.50/GJ to 3P reserves you get a potential share price of $4.50 vs $1.30 currently. Or if you apply only $1/GJ to 500PJ of 2P reserves you get a potential share price of $3.75. And that doesn't include any value for conventional gas prospects. Large margin of safety in my view assuming the market contines to love this sector.


Santos in NSW coal seam methane gas find
Matt Chambers | June 04, 2008

OIL and gas producer Santos has announced potential coal-seam methane resources in NSW to rival Australia's biggest offshore find and says it is considering exporting them as liquefied natural gas.

Santos, whose shares have been running hot after it secured an unexpectedly high price last week for Queensland CSM reserves from Malaysia's Petronas, said yesterday it had 40 trillion cubic feet of potential resources at its Gunnedah Basin, near the town of the same name.

The announcement comes as global majors scramble for CSM resources to supply LNG plants slated for Gladstone. There are so far five planned plants, with gas giants Shell, BG Group and Petronas all involved in one each.

While the Gunnedah estimate has been developed to a very low level of confidence, the potential resource quoted is the same amount as at Chevron's Greater Gorgon gas fields off Western Australia.

Those are seen as the country's biggest gas resource and slated to support long-term LNG supply of more than 15 million tonnes a year, with a development cost that analysts say could be as high as $30 billion.

Speaking at a four-hour investor briefing, Santos acting chief executive David Knox said it was too early to say whether an LNG plant in a port such as Newcastle was being considered, or whether it would be better to pipe the gas to Gladstone or supply the NSW domestic market.

"It's a bit too early for us to start pushing one option," Mr Knox said, adding that in a year or so there would be more of an idea of how much could be shored up as "contingent resources".

"Here in NSW there's a power business that's going to be very strong, so while LNG might be one option", supplying the domestic market was also an option, he said.

Santos expects eastern Australian gas demand to double in the next 10 years as LNG plants start in Gladstone and as carbon trading results in more gas-fired power stations being built.

Analysts said the Gunnedah resources were at a very early stage, with exploration drilling yet to take place, and that not much stock should yet be placed in the huge resource number.

Santos expects to drill 20 core holes over the next 18 months to shore up contingent resources.

Shares in Santos, which have risen about 80 per cent in the past three months, were unchanged yesterday, equalling the previous day's record close of $21.77.

Santos also flagged developing its Bonaparte Basin assets in the Timor Sea using a floating LNG plant to produce 1 million to 2 million tonnes of LNG a year, though it says this is not the preferred option.

Santos had hoped to use the fields, which include Caldita and Barossa, to justify a second LNG plant in Darwin, but it is now talking of joining with other finds.

"There is a real possibility there may be a real combination of assets playing out in this region," said Santos's vice-president of strategic projects, John Anderson.

"We're certainly prepared to entertain such a scenario."