Ann: Quarterly Activities Report and Appendix 5B - Dec 2017, page-10

My email to David Prentice and his response below. I think the company needs to explain the cashflow to the funder to pay back the drilling costs. It’s a black box that only management knows what the status is. David says there will be update soon on this.

I’ve been busy at work so no time to post my revised cashflow but it was in the million but does not include drilling cost payback so company should in a year be able to pay back facility and produce cash for us.

Emails:::

Hi David

I read through the quarterly statement for 31 December 2017 and do not see any mention of BRK receiving any cash from producing wells which have been producing for over 90 days. Also the financials do not list if or show if the funds from producing wells are paying down the loan facilities.

My question is where is the money from the producing wells that have been producing for over 90 days? I cannot see where it goes from these financials and a lot of other shareholders are asking the same question on hotcopper. What happens to the cash? Now that we have a 13.6% interest in a producing well I assume lots of cash will be coming through in 90 days so in the next quarter - where will that cash go?

Thanks



David’s response

Thank you for your email, I appreciate these questions as they help me to get a better picture of how well we are doing getting our message across.

Firstly, can I make the point that the Drilling Fund is not a loan it is off balance sheet well bore financing.
On your question regarding oil and gas sales (and the associated revenue), you are correct that revenue is starting to flow (update out on this shortly).  However, we need to keep in mind that this revenue will flow to the Drilling Fund (who funded the cost of drilling and completing these wells) until that capital is returned.  Obviously, we can’t keep the liability off the balance sheet and then bring the revenue for those wells into the accounts.
From BRK’s point of view, this cash flow is important for two reasons:
1.  It is critical for the reservoir engineers when they are determining the ultimate recoveries per well (reserves).  Profitable (cash flowing wells) deliver more proved reserves per well; and
2.  It can be reinvested in the next batch of wells to be drilled.
So effectively this revenue is available to BRK to be recycled into the drilling and completion of new wells.
Keeping in mind, that the Drilling Fund is designed to fund the cost of drilling and completing the "first well" in each development unit so that we can then capture the reserves (value) in the PUD’s (Proved Undeveloped locations) in that development unit.  The really clever part of this structure is that we CAN bring the value of these reserves onto our balance sheet.
That’s how we build the inventory of high quality reserves without BRK shareholders having to pay for them.
I hope this has helped Aleks.  Very happy to answer any other questions you may have, or for you to post this response on HC if you want to.
We need to keep reinforcing the message that "BRK's value proposition is centred on building an inventory of high quality oil and gas reserves and ultimately increasing value per leasehold acre; and that strong, sustained production rates drive larger reserves per well which in turn drives higher leasehold acreage values”.
Best regards
David