As Bootlegger Bob says, it is wellbore only, BRK transfer the WI in the well, but keep the all the acreage within the Bullard unit. However, I have to disagree with Bootlegger , that is almost all that the SHE step in deal has in common with the STACK A drilling joint venture.
The STACK A JV is essentially a loan , whereby all the drilling costs attributable to BRK's equity interest are funded, BRK have to pay a 12% interest rate on outstanding amount, all net income attributable to BRK in the well is paid to the JV until well payout. After payout, the STACK A JV is entitled to a 25% NRI from future revenue from BRK's interest in the well. Also after payout, BRK give BLACK MESA a 25% WI back in the well AND BM are also entitled to 25% of the acreage as per the BRK/ BM operating deal... Brookside post payout actually get ~ 50% of their original net revenue ( taking royalties into consideration) and PDP reserves from a STACK A funded well , as compared to the 75% they would have received had they funded it themselves..... note, all the % are based on the BRK 20.6% interest in the well.
The wellbore step in agreement with Stonehorse ( SHE) is not a loan type agreement, BRK do not pay any interest, SHE receive to 100% BRK's equity entitlement of the income ( 20.6 % of Bullard) from the well up to payout, after which BLACK MESA get a 25% WI ( 5.15%) in the Bullard well . SHE get 75% of the original WI (15.45) in the well,revenue and PDP reserves. BRK get no revenue from the well, no PDP reserves but 100% of the PUD reserves and acreage . The PUD reserves and acreage still has a 25% back in WI attributable to BLACK MESA.
The STACK A JV was a fantastic deal for Brookside as it allowed 100% OFF balance sheet funding of wells, but BRK still managed to keep ~ 50% of the net revenue from the well post payout ( post royalties). If a well funded by the STACK A JV fails, BRK still have to pay those well funds back into the JV account. The SHE step in is much less generous, but more typical of what happens in the USA.
I don't have a problem with the step in agreement per say ...but the thing that I don't like about the SHE step in agreement is, the FULL step in should only occur BEFORE a well is drilled, not after..... if a well is drilled and is successful, ( as Bullard has been and highly so), and the step in company has not yet paid the drilling costs then, there should be some claw back back equity the well in that BRK is entitled to.
The Bullard well cost BRK ~ AUD $3 million, of which BRK paid ~ $1 million up front, the rest being funded by production cash flow and is almost paid out. Despite the quality of the BLACK MESA team in assessing the geology, potential productivity etc in reviewing the operators data, this was a significant risk BRK took relative to the size of the balance sheet and market cap. SHE have not raised their capital as yet and haven't paid BRK any funds for Bullard as far as I am aware. If Bullard came in dry, I can't imagine SHE stumping up the $3 million for a failed well after the fact. So SHE now have a risk free option to receive all of BRK's equity in a highly productive well which is almost paid out.
Since BRK have paid $1 million out of their pocket, and the well revenue has gone to RIMROCK to pay down BRK's remaining drilling costs , I am assuming SHE will need to pay BRK back the original $1 million and then either wait for the well to payout, or pay RIMROCK the balance of the outstanding drilling costs until they get access to the revenue. My point is , SHE should be required to compensate BRK for the elimination of the drilling risk , BRK should have a back in to some of the equity in the completed and producing Bullard well at a discount. IMO, a step in agreement shouldn't have the same terms and conditions for funding a well before drilling, as funding a well after drilling, especially one so successful and productive as Bullard.
The $1 million SHE will pay BRK back will go a long way to funding participation in the Jewell well, or more SWISH acres, especially when pooling is enforced, but the apparent significant free kick BRK are giving SHE with the Bullard well, and the Randolf well for that matter, is a little bit hard to swallow... funny thing is, despite the fact, SHE seem to be having difficulty in raising funds for a sure thing.
Cheers
Dan
BRK Price at posting:
1.5¢ Sentiment: Buy Disclosure: Held
(20min delay)