Yep, these wells in the over pressurised oil and high liquids gas zone are characterised by an initial high volume of oil with a steep initial decline in the first 12-24 months…. It’s modelled and expected, but the good news is as more wells are drilled in the area, the knowledge bank on how to drill wells that will recover more oil and gas with better decline curves increases. That is effectively what the Courbett development has shown.
BRK will not have another potential big well in the works, but many big wells in the works with detail forthcoming when a JV/ drilling partnership is announced. For any DSU we should see 4- 6 wells be drilled back to back. We know this because this is the way BRK intend to proceed to capture the cost efficiencies of back to back pad development drilling / completion , along with the geologic gains to he had from increased production flows and reserve recovery.
What we don’t know is who the partners will be, although it is logical to assume CLR will be a high chance of being interested in the Flames DSU at the least.
We don’t know what equity level the JV will have in a DSU, but we can assume BRK want to keep the largest equity position and operate the drilling( except possibly in the case of a CLR JV in Flames).
What we don’t know is how much BRK will have to spend to fund it’s share in each DSU but we can assume that for the DSU’s with existing production, the JV partner will purchase an equity position in the wells to match the JV equity…. so , if there is a JV for the Rangers DSU, where company X will have a 30 % position, it will pay cash for 30%of the Rangers/ WP wells, and part carry BRK for drilling 6 or so wells ( say 50% of the total costs)…. Therefore BRK fund ~ 24% of the development for it’s 40 % W where cash from the sale of the 30% of the 2 wells will be supplemented by existing cash.
Therefore the total cash BRK will need to pay would be determined by the total spend required, which depends on the number of pads, number of wells, costs for the pads, service cost to drill and complete the wells, costs for tanks, pipelines etc, etc.
After yesterdays call it finally dawned on me , when DP said they are working on all options with multiple parties to work out what the best way forward is, initially my reaction was “ WTF, how come it seems nothing is bedded down, why are they still working out the best path forward?.. surely they have an idea by now”
The reason is because each monetisation is multi factorial, with many parameters. The incoming parties will have an idea what they want. One party may buy the whole lot, or buy a specific asset. Another party may want to JV the whole lot, or a specific asset, may want to operate and have a majority WI position, etc, etc . You may have multiple parties that want to JV, where they want different things.
For example, CLR may only way to JV Flames, but another party wants to JV Flames and Bruins. Each development is a different scenario, with different well profiles and numbers,different costs, returns…. one may want to operate and the other may be happy to have BRK operate… BRK has to determine which JV will give the best return to shareholders. The more serious parties that come to the table with different scenario’s means more negotiating required by BRK, which means more time.
As DP said yesterday, they can only monetise SWISH once, and they have to ensure they do it right. After being a bit frustrated after the call , woke up with a lot more clarity.
When they announced the BB, they didn’t have the CLR data for the Corbett development, so they actually couldn’t design the most efficient development scenario for their DSU. The data is only a few months old and as discussed, developing Flames with CLR would be different to developing Flames and Bruins with another party and that development would have been altered by the data from Courbett.
This is also why IMO, they seem to be “dragging their feet” in the buy back. Until they actually bed down a deal, from the multiple options they have to go through and negotiate, which will give them clarity on how much capital they need to have , retain, spend, they will be reluctant to go hard on the buy back . They don’t want to risk a JV because they “overspent” on the BB..
We can say but it’s only a few million dollars, they have spent $2.8 for 220 million shares, at current prices will need to spend another ~ $1.5 to get to the 350 million or ~ $3.4 to get to 500 million or 10%. That is 2 Bradbury wells or could be BRK’s share of one of the 4-6 JV wells. DP has always said the BB will be determined by the capital requirements of the company. It makes sense that as they are in the process of what would be the final stages of monetisation, where the capital requirements are probably becoming more defined to them, they are not being aggressive at these levels..but still have buy orders at lower levels, to capture some stock if the levels are broken.
Cheers
Dan
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