Just to clarify, SWISH resource is currently 11.6 million BOE, Barrels of Oil equivalent ( not 11.6 million barrels of oil) made up of ~3.8 million barrels oil and ~46 Billion cubic feet of gas... however, BRK are confident that number is very conservative based on what results the offset operators have been getting with their recent wells.
BRK have 3 operated DSU's with Jewell (880 acres), Rangers ( 640 acres)and Flames (960 acres) or roughly 2300 acres with those DSU's... their original target was 10 operated DSU's and 8000 acres under their control. Despite identifying the SWISH opportunity through their technical analysis of previous vertical wells drilled through the Sycamore and Woodford locations , realizing the potential , seeing those areas were not leased and leasing 6 months before competitors woke up , lack of capital meant they couldn't lease all the acres . The result was they had to cherry pick what they thought was the best acreage and swap/ trade other DSU acres to gain majority positions in their preferred locations to be able to apply to the OCC for DSU, spacing and pooling rights.
The STACK wells were basically BRK's test of their business model, to see if their thesis for horizontal drilling in areas of historic vertical wells was economic, and if acquiring undeveloped land with horizontal well potential once drilled by the initial well would also lead to an uplift in the value of the acreage of up to 10 times which would allow them to sell those undeveloped acreage for significant profit. This model is the private equity model in the USA and BRK wanted to test if it could apply to them.
The result of them '" proving ' the model works was as reserve of 3.45 million BOE and selling some acres for up to USD$ 28,000 per acre. Every well within the STACK is a well in a DSU which has further development potential so as these are developed, BRK have the opportunity to participate in the drilling as minority holders and access the cashflow, or sell their position for cash to redeployment .
The operating backbone of BRK are the USA guys in Black Mesa who run the show over there for us. they get paid a fraction of the going rate but they own 50% of BM with BRK owning the other half. BM find the opportunity for BRK, if BRK take it up and fund the lease purchases, and drilling, the " remuneration' BM receive is 25% of the BRK interest, which BM only get once BRK achieve payout of their investment cost . This 25% apples to leasing and drilling projects that BRK participate in and then other companies like SHE step in for. BM also receive an 18.75 % WI of any production assets like ORION.
SO , for example, if BRK and SHE both have a 50% interest in Jewell, and spend $5 million to drill and complete, the BM back in won't occur until both get back their $5 million, after that, the equity position in the well will be BRK and SHE 37.5 %, BM 25%... BM will also receive 25% of the BRK equity position in the Jewell PUD. Since BRK own 50% of BM, the effective BRK dilution is only 12.5 % and BRK will participate through BM in any deals they may do outside the BRK envelope later down the track.
Will they look for other assets within the SCOOP? they are continually looking , the ORION JV especially the Thelma/ Bradbury opportunity is a prime example of the technical prowess of in house project generation by BM of overlooked areas with potential. The Bradbury will hopefully shape up as a new DSU within a new AOI outside the SWISH where they have potentially found a new target to focus on.
It is in the BM teams interest to keep on feeding the pipeline of assets as their 18.75%-25% WI back in means the more assets BRK have , the more assets BM receive the backin for, the bigger pile of cash they will get at the end. This team has a history of company building and selling at the high point of the cycle. The biggest constraint for this iteration has been lack of capital, but that should be behind the group now.
Hope that helps
cheers
Dan
BRK Price at posting:
2.0¢ Sentiment: Buy Disclosure: Held
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