Flew to Perth for the AGM, great day and as planned, met up with a few HC' ers
@TheProfessional ,
@chilledpain ,
@peto2810,
@caledan and
@Bitcoinkid . Was great to have a catch-up with so many HC'ers
Third AGM attendance for me and the difference in the atmosphere around the attending group from when the MD said in May 2019 "we will be drilling and preparing to start the curve into the horizontal etc" was palpable.
A significant proportion of the T20 and other large, long standing shareholders were in attendance , and the cohesion of thought and purpose between the company and shareholders can be seen in the results of the voting.
The AGM officially started at 10 am, officially finished at ~ 11 am , and unofficially finished around 7 pm. A few of the HC crew then carried on back in the city till way past 11 PM. Don't know of too many companies where the board and execs will engage with the attending shareholder group post AGM for 8 hours. I have been to countless Sydney AGM's of large and small companies , where you may have a cup of tea, some iced Vovo's and may be lucky to get 1/2 an hour with the MD/ Chairman or executive. Not sure if that is a Perth thing, or a BRK thing, where David Prentice's culture, ( and also including the Chairman Michael Fry, and Gracjan Lambert) of personal engagement with attending shareholders, large and small provides a very high degree of confidence of the quality of character of the people running the show on our behalf . Unfortunately, due to COVID, no Black Mesa team members were able to be present but that will be the intention for next year.
So far so good on the Jewell. DP was very nervous over the 22 hour period the drilling bit was being tripped ( removed out of the well bore) and intermediate casing was being inserted and cemented. The success of this operation is significant in securing the stability of the vertical section in preparation to commence drilling the horizontal section and de-risk's a major part of the drilling component. Expect an announcement next week on progress of the horizontal section. The timeline for operations is in the AGM presentation and to note, his Birthday is early August, and if there are no serious issues, first hydrocarbon sales are predicted around the birthday date!
The final level of participation in the Jewel well should be known within a week or so as XTO and Citation will need to declare their intention to participate. If they do participate,( and BRK expect them to do so), then the BRK holding in the DSU, and the available WI equity for which SHE can participate in up to 50% of, is 87%. IMO , I would expect BRK to have a larger WI position in the well than SHE. I would guess BRK 44-45%, SHE 42-43% others 13%.
The plan going forward is to move as quickly as possible onto the Rangers. The partnership with SHE will continue for this well . Depending on timing purposes, the Latshaw 14 rig may/ or may not be used to drill Rangers. Timeframe should be inside 3 months . Flames to follow also quickly after that , with the prediction that by this time next year, all 3 wells will be on production. If all goes according to plan, the company expectation is a production rate net to BRK of ~3000 BOEPD , albeit with a fairly steep production decline after the initial flush production. Their internal estimates are also a PUD reserve with the 3 DUS's of between 12 and 20 million BOE, again dependant on well results.
As previously mentioned, BRK's mantra is monetisation of assets, in the most expeditious and beneficial way possible for it's shareholders. The most exciting discussion was what are the future plans for monetization, and the common theme was a mixture of production and reserve sales. To understand what this means you have 2 target zones , the Sycamore and the Woodford, each with their own reserves and production profiles in the wells. The much vaunted 20 well development plan BRK has mentioned includes developing the reserves in both zones. The initial Jewell, Rangers and Flames wells are Sycamore targets so production will commence from that zone. Each well that will need to be drilled will cost ~AUD$10 million dollars so to drill all 20 wells on a 100% basis will cost BRK ~$200 million. How do BRK get to fund this?
All cards are on the table ( but BRK will not borrow to fund development drilling), from selling the whole DSU's, farming out for a free carry, raising the cash somehow.... but the current preferred option is actually very novel, develop the Sycamore by selling the Woodford PUDS ! The first 3 wells drilled will be the Sycamore initial wells in each DSU. This will mean that all the reserves, both Sycamore and Woodford are held by production which means there is no lease expiry until the wells cease producing ( 30 years +)
The consequence of this is that BRK can separate the ownership of the Sycamore reserves and the Woodford reserves so now, to develop the rest of the Sycamore may only need and additional 5-7 wells, and they can sell the PUD reserves, which are still held by production, to an expert company that is predominantly developing the Woodford in the area. The company will have ~3000 net acres of Woodford shale rights in the SWISH to sell, and the quality of the acres could mean a sale price of anywhere from US$20,000 per acre, to $50,000 per acre.... you do the math ( US $60-150 million or AUD$ 75- 190 million) . These prices are being achieved right now in the USA for premium undeveloped PUD acreage.
The 5-7 Sycamore wells ( AUD $50-70 million) can be solely funded by BRK if they so desire, potentially giving a combined net initial production to BRK (5000 - 10,000 BOEPD if batch drilled) and there will be a bucket load of cash available for BRK ( excluding significant cash from production) to do with want they deem best , including a potential capital return to shareholders, as is the private equity model.
Obviously, there are many factors such as commodity prices, the interest level of CLR, other opportunities etc that will come into play, but the above scenario is not a pipe dream, but part of the active capital management optionality BRK have. All that is needed to unlock the above potential are 3 wells, Jewell, rangers and Flames being successful and performing to company expectations.
While this is happening, BRK are also being inundated with calls from companies who have speculatively acquired acreage in the SWISH AOI over the last 2-3 years in the hope they can have their acreage drilled and then sell that acreage at a significant profit. Unfortunately, because of the down turn in the USA industry, there are very few operators drilling so that part of their model has failed. Because the lease terms are only for 3 years, COVID extensions are almost finished and then extending the lease terms by the 1 year option costs money, these " speculators", many of which are PE companies who are fixed term and fixed fiance are facing the threat of having their leases expire without being drilled. What ae these companies talking to BRK about?... now that BRK have an active rig in the area, they want to deal with the company in the hope that BRK will drill their acreage and save their bacon.
Do BRK have to deal with these companies on those companies terms and wishes? No, if BRK don't get a deal they want, they can decline, let those leases expire and then pick up those leases if they desire. So, the company expectation is that there is a high probability that they will be able to negotiate a material increase in SWISH acreage holding over the next year or so, on very favourable term to the company.
In regards to the lease acquisition facility, the company paid down US$1 million to leave US$ 3 million, as per the last quarterly report, and will have the option to extend or pay down more as it sees fit. The MD has no desire to carry debt in the company and as mentioned previously, has ruled out borrowing for development drilling.
In regards to other assets on hand, the company is focussed on the 3 current operated wells, and further geological work on the Thelma and Bradbury leases will continue , but at a slower pace.
The addition to the executive team of Gracjan Lambert has added a highly experienced, talented and motivated individual who has given David Prentice a significant level of support, and often an alternative point of view when dealing with the company affairs. Even though BRK is not an exploration company, Gacjan's calibre is highlighted by the fact that he , as one of the team leaders, was responsible for the play opening discovery of the billion barrel Liza oil field in Guyana.
https://en.wikipedia.org/wiki/Petroleum_industry_in_Guyana
I think that pretty well covers it.
In summary, contrary of the belief of a few 20 year long veterans in investing in the oil patch, BRK is not following the path of FDM into obscurity and oblivion. The path to success has been laid down and is quite clear. BRK has raised the capital, de-risked it's business model to minimise almost all the normal risk factors typical in the business. All we need is for BRK to execute on it's plans, have no crazy , low percentage left of field events occurring, and within 12 months or so, we should be looking at a company that is unrecognizable today in terms of production, cashflow, reserves and most importantly of all , opportunity !
Cheers
Dan
(20min delay)