I have been posting since 2018 that BRK do not drill for production, that the main purpose for drilling the DSU's is to prove the reserves which will result in land revaluation which will facilitate a sale.
I didn't post this because it was some fancy idea I came up with, but because that was the preferred option for the asset monetisation as guided by the company. But all along, even though BRK said sale was their preferred option, the company has always maintained the monetisation path chosen was going to be based on the option that gives shareholders the best return at the time.
Does that ring a bell ?
The possible pathways were going be be either
1) sell, full or in part
2) JV or partnership
3) full field development
And up to 2023, after the 3 primary DSU wells were drilled and the reserves were proven, asset sale was still the preferred option. Then they drilled Wolf pack, as the first development well, but that was mainly in response to 3rd party drilling in the DSU immediately east of Rangers which would have left that flank exposed and compromise the reserve there.
So what would you have the company do?
Still proceed with an asset sale and cash out for a fraction for what the reserves are worth?... because that is what they could have done. They did receive some ridiculous low offers. Camino sold it's SWISH assets, the operated position of which was 3 times the size of BRK's for ~US$90 million, which means , BRK at best would have received ~$40-million... even if they were offered double, would you be happy with that as a shareholder?
It became obvious to management that the preferred option was not the path that was going to give shareholders the best return.
Do you expect the company to "stick to it's guns" as such, and sell the SWISH assets at all costs?
Why would the offers not be anywhere what they would have been back in 2018 when the asset sale path was all the rage? .. I've done that post countless of times so I'll leave that up to you to ask the company on the Investor hub.
The fundamentals I am talking about are share based metrics that any company producing and drilling for oil, can be valued on.
No the company are not talking about selling today, that is correct, but guess what, if conditions change and selling PUD reserves gives the better returns again for small players like BRK, then that will come back onto the table.
You mention Freedom , and yes, there definitely is a higher risk involved in taking the drilling for production route. The risks are greater because significant capital has to be invested upfront before any cashflow comes back to the company. The company is at the mercy of the commodity price cycle which affects it's cashflow, but more importantly, if they are mainly debt funded, causes drastic rebasing of their debt facilities, right at the worst possible time. Those circumstances are what caused Freedom to fail, and that is what caused RFE, the BRK precursor comp0any to fail.... and that is why BRK's most favored monetisation pathway was the lower cost and lower risk PUD asset sale pathway .
But in today's climate, after assessing all parameters, BRK have decided that monetisation via drilling for production is the pathway that will bring shareholders the best return from the asset.
Yes, it is the riskier path, BRK will invest a net US$ 126 million to fund the drilling of the next 16 wells, after spending a net US$ 26 million on the FMDP. But the risk is mitigated significantly by the tier 1 nature of the SWISH assets, the high oil and NGL ratios, the tremendous flowback rates and IP 30-90-rates which expedite payback, the learnings from the CLR Courbett development which include the cost savings and EUR enhancement pad drilling and the wine rack development, but most importantly:
1) The fact the the initial DSU wells have thrown off so much cash, as will the subsequent wells as they perform to model, the FMDP and SWISH FFD will be primarily funded through cashflow, and possibly a small Reserve base lending facility, which will aid smoothen out liquidity. The company considering a small facility is another significant paradigm shift in corporate thinking, considering the almost " I'd rather die before I do it again" approach to debt after the RFE experience. The company will have little debt, and when it has debt, it will not be held long before cashflow fills the tills again.
2)The fact that cash development and production costs are ~US$ 22, and all in costs including depreciation , etc are in the low US$ 30 ,mean the the asset is almost immune from the commodity cycle, barring a COVID or GFC like situation.
Talking about paradigm shift, even before BRK decided not to sell, and drill for production as the monetisation path, they had to modify their asset sale pathway as well. I have already posted numerous times on this as well, but will do so again.
You may recall the below.
The original asset sale pathway mean't BRK would not pay for the INBITIAL wells on the DSU's . They didn't want to raise money to drill Jewell, Rangers , Flames. They wanted 3rd parties to fully fund those wells on a welbore only basis, where the third parties booked all the reserves received all the cashflow from the wells, and BRK booked the remaining PUD reserves and were to sell those.
That pathway would have meant BRK would have only ~1.8 billion SOI, but no operated SWISH production and no revenue ? cashflow from Jewell, Rangers , Flames and WP.... do you remember reading about this?
So BRK already back in 2021 had to significantly change the manner in which they funded the proving of the reserve base and raise capital to fund the Jewell well. This change actually caused the run up in the share price from 0.8 cents to temporarily hit 4 cents c, which it seems resulted the likes of you to follow the mob and become a trapped baggie.
If you don't have the patience to wait for a return, if you don't have the means to calculate what a company may be worth as it executes it's plans and adjust for any variations, if you think companies "dig for oil" rather than drill for oil, then unless you are a trader, it's might be best to have a paradigm shift.
BRK Price at posting:
1.3¢ Sentiment: Buy Disclosure: Held
(20min delay)