1) They are drilling wells that should have been drilled a year ago.
There is a huge difference between drilling 4 wells, one at a time every 3 months, and drilling 4 wells in a batch . Yes, they could have drilled in the former style last year, but that would have required them to drill a different well in a different DSU every 3 months. They couldn't /wouldn't drill one well every 3 months from the same pad ... The reason for that is each time they would complete a well, they would have to shut in the existing wells and flood the well bore and fractures with water to build a hydrostatic barrier to protect the existing well from a frack hit.. That " protective" action would require the first well to be shut in 3 times, the second 2 times etc . This would cause more and more well disruption and significant down time across the year affecting production and there wouldn't be the drill cost savings or production ? EUR gains with associated with a uninterrupted 4 well drilling and completion program .
They didn't drill the 4 well FMDP last year not only because of the well set up but because they didn't have the Maroons Sycamore leases in hand at that stage, and more importantly, they didn't have the cash rebuilt after the expensive Wolf Pack well to fund 4 wells back to back.. It was the Courbett drilling program which gave them the confidence to chase the Marrons Sycamore DSU ,( above the Flames Woodford DSU ) to allow the wine rack development.
All FFD in the SWISH by CLR, Citation and Marathon is now batch drilled, wine rack because of the cost and production efficiencies. You can see that in the Springboard III graphic below, where the green lines are wells being drilled, the blue lines are wells drilled but not yet completed, and the yellow are permitted wells. e Why the hell would BRK want to do a FFD one well at a time, one DSU at the time and miss out on ALL the cost and production efficiencies ?
2) It's not hundreds, but thousands of such wells drilled in the USA each year without failure... However, not many of those wells are drilled by companies where the gross spend on those wells exceeds their market cap ( if they are listed). Many of those wells either underperform , have cost blowouts and a couple even have actual blowouts. BRK have drilled wells which have met, exceeded expectations and have allowed cash to be built to now fund 4 wells back to back, without the need for a cap raise... a remarkable achievement.
3) Your 3 pillar approach ... those thousands of fracked horizontal non conventional wells drill each year all exhibit steep declines and that is catered for by all companies, not just BRK. But not many of those companies are drilling on acreage that has as per below in the first sentence
That's tier 1 of tier 1 acreage .. "The highest resource per DSU in the mid continent" , that's Park Lane and Mayfair on the monopoly board , prospected, acquired and developed in house by DP's team, the team he built and is building on.
4) " pathetic buy back"... is only pathetic in your eyes because it didn't increase the SP, which it was never meant to do. Having said that, there was a failing here , not in the outcome, but in the communication. I can't blame folks for thinking there may be a positive SP response when he explanation given for the BB, "being part of the toolkit the close the gap between share price and share value " was used. This sentence implies either:
a) The share price will rise to meet share value.
b) Share value will fall to meet share price ( that would have been the case had they sold SWISH for- $40 million)
c) A combination of the above
Sure as hell (b) wasn't going to happen so the message was misguided IMO, considering the main intent/ benefit of the BB was to buy back as many shares as cheaply as possible with the cash available that was not needed for a drilling program.
They decided to go down the FFD precisely because any deals for sale they received would have resulted in a (b) like outcome, and the CLR Courbett development shone the light on how they could maximise monetization, albeit with a much higher level of risk considering the capital and number of wells required.
5) As far as "gift themselves with performance shares to virtually make that buy back a non event", well that is another communication disaster piece.
Those 238 million performance rights are the maximum that can be allocated during the 5 year term of the plan, as required to be enunciated by ASX rules. It doesn't mean that quantum of shares will be issued. Unlike the earlier incentive plan which allowed ad hock allocation to directors, where they could have non cash conversion of incentives funded by risk free loans ( approved by shareholders at earlier AGMs), without specific KPI's, this new incentive scheme addresses all those inconsistencies for issues to employees and directors in a structured manner. There will be clear STI KPI's based on operational performance paid in cash, and LTI's based on total shareholder returns paid in performance rights.
For that full allotment shares to be issued, BRK will need to deliver Total share holder returns which meet, exceed all shareholder total return KPI's. For directors, proposed issues will need to be voted for by shareholders. The issue will be what will those KPI's be .. they need to be at hurdles that are realistic but set where shareholders see a return.
This should have been a welcome "reform', not that you would know with with the communication that came with the Incentive Scheme announcement. The way DP's salary increase and incentive scheme was announced without clarity and context , it's no wonder most thought the whole thing was a free money grab.
6) "D.P probably thought brk would be a massive takeover target from day dot"... as per the PE model you are 100% correct. The intention was always to sell either the assets( more likely), or the company for a significant value uplift once the PUD reserves were proven and HBP... but there was also the original intention for BRK not to participate in drilling any HBP wells so as to avoid the significant dilution that would come about with capital raisings to fund the wells...but that didn't pan out either .
7) "Another 2500 barrels a day won't transform this stock as most now know the decline rates and lack of interest from other deep pocket parties".... That is debatable as another 5000 BOEPD before decline will transform this stock. If BRK MC stays at this level by 2028 when the company is generating US$ 50 million in net income, it will be trading on a PE ratio of less than 1 and have a negative enterprise value if it has no debt and US$40 million in the bank as projected.
The production pathway now means BRK shareholders can have their cake and eat it.
8) "I just hope to see my 2.8c buy in again but feel it won't come for a long time."
The FCF generated by the project in the 5 years post drilling, completion, development costs ( also funded by cash flow) will exceed any net cash received from a full asset sale from the SWISH, and BRK will still retain a long tail , low decline production profile that exceeds current production.... So I agree with your last statement as there may be a wait associated which may be beyond the time frame of many current shareholders.... or maybe not.
As I said, can't blame shareholders for feeling they way they feel. That is based on lack of actual returns, but IMO also significantly propagated by lack of clarity and context in much of the company communication, especially for a few of the milestone announcements.
Thanks for the discussion
Cheers
Dan
BRK Price at posting:
1.1¢ Sentiment: Buy Disclosure: Held
(20min delay)