Ann: STACK Wells Acquired Significant Production Increase, page-40

Great outcome here as essentially BRK are buying back the farm.

The STACK JV was set up by BRK as an off balance sheet funding mechanism to pay for the drilling of wells in the STACK play. BRK didn't want to use its own cash (for which it would have to raise cash via equity raising at low prices) for the drilling so the JV basically worked such that BRK would vend it's WI interests into the JV, and Merchant's contribution to the JV was the cash outlays for the drilling. the cash merchant put into the JV was interest free. Merchant's ' remuneration' was that it would receive a 25% NRI ( Net Revenue Interest) of BRK's interest in each well and DSU that the JV funded. This was to occur after the JV recouped all the cash that was spent drilling the wells.

Basically Merchant would contribute drilling cash to the JV, the wells would be drilled and produce cashflow which would go back to the JV and merchant would be repaid those funds. Once all the outstanding funds were repaid, Merchant would receive their 25% NRI of the BRK WI in the wells and the DSU's associated with those wells and BRK would get 75% of it's contributed well and DSU interests.

The result was that BRK got to drill 11 wells for no cash outlay which totaled over US$4.5 million but would not receive any cashflow directly until all the funds outstanding were paid back

As of Dec 30 202, the JV still had to pay back US$ 2,077,000.

The beauty of this deal for BRK is that by buying out the Merchant position, its access the cash flow immediately. There is no need for the JV to payback any further cash apart from what would have been paid back from cashflow in the Jan-march quarter. Merchant do not get the 25% NRI that they would have received had the JV run its natural course, and this deal values BRK's interest in those wells at US$ 8 million.

This is a fantastic outcome for BRK , immediate cashflow benefit to the balance sheet, very competitive purchase cost on assets effectively held and well known, and no 25% permanent dilution of the assets developments going forward ( excluding the Black Mesa back in)

Cheers

Dan