Summary of BRK, page-423

As I was saying earlier, the 11.6 MMBOE reserve figure BRK expose for the SWISH acreage has to be taken into context.

It is my biggest beef with BRK because it confuses the hell out of investors. This is a absolute net number to BRK after 20% royalties and Black mesa's 25% back in has been taken into account.

In addition that number is a 2 stream oil and raw gas number which doesn't show the NGL reserves contained within the raw gas. .... and that number is missing the the new Rangers DSU which effectively added 13% to reserves .


The resource announcement is found in the link

https://app.sharelinktechnologies.com/announcement/asx/bd7d39263c31dced9f441b0768b8cb39

Points to be aware of are firstly, the 11.606 MMBOE resource which will become a reserve once Flames is on production as the last of the 3 HBP wells to be drilled consists of :

1) 3.839 million barrels of oil and
2) 46.603 BCF raw gas or 7.77 MMBOE raw gas

As the notes to the reserves describe....the prospective resources information in this document is reported according to the Company’s economic interest in each of the resources and net of royalties . This means attributable to the BRK WI after royalties and the Black Mesa back in are accounted.

The reserves are based on BRK having an effective WI of 90% in each of the DSU's , but as in reality the BRK WI is more like 80%, an adjustment has to be made for that.

There is no reflection of the NGL reserves contained in the raw gas, as the headline reserve is a 2 stream ( oil and raw gas ) number, where as BRK sell 3 streams ( oil, NGL and shrunk gas) so that has to be considered. One reason the reserve was put as 2 stream r is because until they actually had a NGL rich gas flow from Jewell, they didn't have a actual NGL gas composition from a BRK DSU , only information from 3rd party operators near by ( which would have been / is very similar to the BRK content as are essentially part of the same " field")

There is no accounting for the Rangers additional 320 acre DSU which was leased allowing BRK to form a multiunit DSU, increasing the original Rangers DSU by 50%, which resulted in a a 50% increase in the Rangers DSU reserves, or increasing total SWISH DSU reserves by ~13% as a result of increasing the SWISH operated acreage by ~13%.... announcement link below.


https://app.sharelinktechnologies.com/announcement/asx/4a0bf797686ce24008780531c895ca44

So what does this all mean?

IMO, it is important to work out the magnitude of the SWISH reserves in absolute terms, and understand the BRK reserves in absolute terms, relative to the BRK WI before subtracting royalties and the Black Mesa back in, and have a measure of the NGL's contained within the gas . To do this we have to work back from the " official" BRK resource which is set out below.

1) Calculate the reserves before removing the 20% Royalties and the 25% Black Mesa back in

a) Reserve before BM back in = 11.606 MMBOE/ 0.75 = 15.47 MMBOE

b) Reserve before royalty = 15.47MMBOE/0.8 = 19.34 MMBOE

where oil = 3.839/0.75 x 0.8 = 6.4 MMBOE
and gas = 7.77 MMBOE/0.75x 0.8 = 12.95 MMBOE raw gas or 46.603 BCF/ 0.75x 0.8 = 77.67 BCF raw gas

2) add 13% due to new Rangers DSU = 19.34 x 1.13 = 21.85 MMBOE

where oil =6.4 x 1.13 = 7.23 million barrels
and gas = 12.95 x 1.13 = 14.63 MMBOE raw gas or 77.67 x 1.13 = 87.77 BCF raw gas.

This 21.85 MMBOE represents BRK reserves if their interest in the DSU's was 90%, but in reality , their average WI is closer to 80% so to work that out we get

21.85/ 0.9 = 24.27 MMBOE for the full field 2 stream reserve

and the BRK reserve is 24.27 x 0.8= 19.4 MMBOE at the 80% WI level

where oil = 5.69 million barrels oil
and gas = 13.0 MMBOE raw gas or 78 BCF raw gas.

To work out the NGL reserves contained within the raw gas we need to know the NGL content of the raw gas , and what happens to the gas volume once the MMBTU's of NGL are separated from the raw gas.

The NGL content of the raw gas pretty well stays in constant proportion as the gas is produced over it's field life. We can assume the NGL content of the Sycamore formation for the Jewell, Rangers and Flames will be fairly analogous, but Rangers being further west and deeper may be a little less rich than Flames which may be a little less rich than Jewell.

The NGL content of the raw gas in Jewel has stabilised at ~100 barrels per MMCFG after initially being at 140 barrels per MMCFG. The black Mesa pre drill estimates were 100 barrels per MMCF so the Jewell came in pretty well on target.

When the NGL's are extracted from the raw gas stream, the remaining " shrunk gas" loses volume as compare to the raw gas. For Jewell the shrunk gas volume is ~70%. This means when 1MMCF raw gas from Jewell flows into the gas processing plant, 100 barrel NGL comes out, along with 0.7 MMCG shrunk gas.

Now in BOE terms , the relationship between gas and oil is 6:1 , where 6000 cubic feet of dry gas with no NGL's equals 1 barrel of oil equivalent ( BOE) in energy value. 1 million cubic feet gas or 1 MMCFG = 166.7 BOE

So when 1MMCF raw Jewell gas or 166.7 BOE raw gas flows into the gas plant, 100 barrels NGL and 0.7 MMCF or 116.7 BOE shrunk gas exit the gas plant. So effectively 166.7 BOE raw gas produces 216.7 BOE of NGL's and shrunk gas.

These ratios will allow us to calculate the 3 stream ( oil, NGL and shrunk gas) reserves of the SWISH field and the 3 stream reserves of the BRK ~80%WI.

We have calculated the SWISH field to hold

a) 7.23 million barrel of oil and

b) 87.77 BCF gas which holds

c) 8.77 million barrels NGL's ( 100 barrel per MMCFG) and

d) 61.44 BCF or 10.24 MMBOE shrunk gas ( shrunk gas volume =0.7 of raw gas volume)

for a " field" total of 26.23 MMBOE 3 stream ( oil, NGL and gas ) reserves.

BRK's 80% WI = ~20.99 MMBOE reserves.

I had originally attributed BRK WI reserves at ~23.5 MMBOE, but that was assuming their WI being the 90% for the DSU's, not the actual ~80%.

IMO, the distinction between a WI reserve before the subtraction for royalties and the Black Mesa back in is important because most Aussie investors are use to seeing a company's reserves stated before subtractions where as in the USA, reserve reports have the royalties excluded as they are never actually owned by the producing company.

In addition, IMO it is important to have a 3 stream reserve to aid in valuation because we need to be able to see / account the NGL reserves. Natural gas is produced in volume ( MCF) but sold in calorific value ( MMBTU) so 1MCF gas with no NGl will contain ~1MMBTU, where as 1MCF rich gas may contain ~1.4MMBTU or whatever and will be worth much more which is why having a rich gas stream like the SWISH acreage is important for the value of the in ground reserves, but also for the production revenue cash flow produced.

Right now oil sells at over US$100 per barrel, NGL's as a composite at ~US$60 per barrel and gas at US$8 per MCF sells at US$48 per BOE.

So for the Jewell example , if the Jewell gas stream was NGL free, 1 MMCFG would sell for US$ 8000, but being rich in NGL, that 1 MMCFG produces an income stream of US$6000 for the NGl's and US$ 5600 for the gas for a total of US$ 11600.

The purpose of this was to show how context , especially for BRK is vital for understanding the company.

The 11.606 MMBOE reserve number needs to be understood for what it is, a 2 stream, pre Rangers additional DSU NET number to BRK at an estimated 90% WI (as opposed to the true 80%) after royalties and the BM entitlement are accounted for. It doesn't give a true picture of the magnitude of the BRK reserve, but more a truer picture of the Economic value of the reserve ( if one knew how to value in MMBTU's rather than volumes).

Again, as mentioned before, the result is IMO some serious confusion, because investors can't come to grips on how to value the company, what parameters to use, values and inputs to use... and without recourse to understanding the relationship between raw gas and NGl's, even the most experienced investors can be thrown way off the mark.

So people saying BRK will be $1 on the current 3 DSU's are being , to put it mildly, VERY UNREALISTIC because on a fully diluted basis, that would imply a market cap of AUD$ 5 billion for a 3 stream reserve of ~21 MMBOE, or US$ 238 per BOE! and that is before 20% royalties or ~4 MMBOE are removed ( not BRK's reserves in the first place) .. and then there is the BM back in, of which BRK will get back 50% of in net terms due to it's ownership position in Black Mesa. So on this point, I 1000% agree with @TwinTurboCelica.

But there is tremendous value embedded in BRK, the highly supportive commodity prices are a huge bonus.. you just need to be able to have an idea on how to work out what that value may be.
And then there is the blue sky in terms of what a very well capitalised BRK will be able to procure in terms of new DSU's in tier 1 acreage like the SWISH going forward with similar metrics in terms of reserves per acre and well production.... bearing in mind BRK were on track to have 8 DSU's initially with ~8000 net acres holding 50-60 MMBOE reserves to BRK 80% WI ( The Sundance Kid DSU was one of them)

Again apologies about the long winded post. Hopefully you guys were able to follow the reserve breakdown stuff OK.



Cheers

Dan