Hi mate.
Some excellent points made .
Here we are again , mainly because whilst we know what the immediate plans are for the nest 12 months, we are guessing what the future looks like beyond as pretty well everything is conjecture from 2025 onward.
From the guidance provided on the FMDP , the development will absorb most, if not all the cash BRK have accumulated. Additionally, if production starts late 3rd Q, early 4th Q 2024, it will take some months of flow back before peak rates are reach, and as you said, it will be possibly second Q 2025 before there will be any significant cumulative cash contribution from the project. There still will be reduced, but material cashflow from the existing wells. Bear in mind, the Flames well will have been shut in for some time during the drilling, and during all of the completion of the development... for 4+ months.
BRK have stated that any buy back of stock will be dependent on available capital, so it makes sense that any cash will be directed towards drilling the next phase of development.
As you correctly pointed out, BRK waiting 12 months post FMDP completion for cashflow to build to drill another 4-6 wells ( which would put the about half way through the program) would delay any benefit to beyond 2027 . This would not be a satisfactory outcome.
We all want BRK to get on and accelerate their program, the question is , how?
Some things first.
BRK have not stated officially which DSU's will be the next cabs of the rack.
@lonewolf mentioned from his catch-up with DP, he remembered Rangers will be the last to be developed which makes sense, as it currently is the largest cashflow contributor and shutting the 2 existing wells will take a large chunk out of cashflow. Lonewolf also mentioned we should know more on the next cab of the rank by June , so until we get some detail, there is some uncertainty.
Having said that, it looks like it will be Jewell or Bruins or even both next .... there are a few factors to take into consideration which lead to different funding and spending outcomes. Drilling horizontal wells N-S will mean Bruins will need 4-5 Woodford wells, Jewell would need 4-5 Woodford wells and 1 Sycamore well.
However, the contiguous nature of Bruins/ Jewell leads to the possibility of simultaneous development and possible alternate scenarios. The angled well development at CLR's Courbett development could mean that is a possible scenario at Jewell/ Bruins. This would decrease the number of Woodford wells needed leading to material drilling cost savings but would cause interference with the existing Jewell well ( as the Woodford wells would run under Jewell). The interreference and any loss associated may be significantly less than the savings on drilling.
Both scenarios would be expensive, almost certainly in the US$80-100 million range on a 100% WI basis. At the current DSU ownership ,BRK would need to fund ~65- 70% if going it alone.
Just because BRK determined the best outcome for shareholders for the FMDP was sole funding, doesn't mean this will be the case for Bruins and Jewell. It is clear that such a back to back drilling program would not be able to be self funded by BRK without taking on a large debt facility, or more likely a JV/ drilling partnership. US$ 50-70 million borrowing to drill up to 12 wells will be very difficult, if not impossible to achieve for a AUD$50 MC company which is why a JV or drilling partnership IMO will almost certainly the way forward .
This is how BRK will be able to accelerate the drilling program and participate in such a large and costly development . For example contributing say 30% of their WI ( keeping 35-40%) for a 40% WI carry would mean BRK would need to fund ~30% or US$24-30 million. If they started the drilling program 6 months after cashflow from FMDP started, they would be able to stay ahead of the expenses and self fund . If BRK borrowed US$10 million, they could start 3+ months earlier. Such a large program may be accelerated by the use of 2 drilling rigs and 2 completion crews so it could be done within 9-12 months. CLR used multiple rigs and completion crew on Courbett.
The cashflow generated by the existing wells, the 4 FMDP wells and flush production from the Bruins-Jewell project would pretty well allow BRK to commence and self fund a Rangers development , which would consist of 4-5 Woodford wells, and 1 Sycamore well within a few months of the completion of the Bruins/ Jewell. That would be a single rig and completion crew, and take 9-12 months.
Under the above we could see , Bruins/ Jewell flowing in early 2026 and Rangers 9-12 months later meaning all the wells drilled and producing by sometime in 2027.
It seems it all hinges on A JV for Bruins/ Jewell .. for the above scenario, yes it does.
BRK may get the opportunity to sell assets along the way, especially if someone bids close to the NPV with ~a 20% discount, thereby bringing forward " monetisation", but this is they way I see BRK moving ahead and monetising by drilling. Will it happen this way?... who knows but I can't see too many alternatives if BRK stay in the SWISH and develop. I can't speak on how BRK may return capital during what I believe will be a very busy 3 year drilling program, except say it probably won't.
The end game for this asset base is full monetisation, which currently looks to be development drilling. If by 2026 BRK is advanced along this , or a similar pathway then I will be satisfied they have done operationally at least, what is necessary to achieve a rerate. If they proceed with development and have have only drilled another 4 wells by 2026 then I will not be happy , and will be screaming blue murder like everyone else. Having said that, there is no guarantee that the market will reward BRK with share price rerate as it proceeds with development or when it is producing 8,000-10,000 BOEPD from it's current asset base sometime in 2027.
Cheers
Dan
(20min delay)