Director reply

I emailed David regarding acquisition scenario. He replied with following example. I like that the management team is so approachable and provide detailed answers. Hope this helps others I’m holding onto my shares

Hi

Thanks for your questions.

In an exit scenario (asset sale or take-out of the operating subsidiary), 100% of the proceeds flow to BRK until we have recovered everything we have spent to put the acreage together (lease bonus plus G&A plus overheads etc.). From that point, Black Mesa receives its 25% back-in after pay-out so it receives 25% of the proceeds (keeping in mind BRK also owns 15% of Black Mesa). So effectively BRK gets first call on the proceeds to recover what it has spent then BRK gets 78.75% of the balance of the proceeds.

Working example as follows:

Investment by BRK, say US$20m

Sale proceeds of say US$200m

BRK receives first US$20m; and then

75% of balance or a further US$135m

Black Mesa receives a total US$45m (BRK receives US$6.75m of this via its shareholding in Black Mesa)

Total received by BRK in this example would be US$20m + US$135m + US$6.75m = US$161.75
The Drilling Joint Venture (DJV) is a well bore interest only and does not have an interest in the acreage. In the scenario described above the acreage would be sold on the basis that 100% of the cash flow from the first well in a development unit (funded by the DJV) would go back to the DJV until it has recovered its capital. So lets say the split between drilling costs and leasing etc. costs is 70/30, then the DJV would receive US$14m less any cash flow it had already received and BRK would receive the balance of the US$20m plus US$141.75m.

As we set out in the last announcement, cash flow we receive from wells funded by the DJV (prior to any take-out) are available to be recycled to fund new wells- so in effect a type of revolving facility. US$3.5m goes out, US$2m comes in cash flow and this is then made available to be reinvested in new wells etc.

If we fund something from free cash flow in the future it will only be subject to the Black Mesa 25% back-in after pay-out described above.

Hope this helps.

Best regards