Again , there is some complexity in the BM relationship.... surprise, surprise
There were originally 2 types of equity in BM, member equity and incentive equity.
Member equity was the original funding equity where of US 3.26 million to establish and fund Black Mesa where BRK had 30% , with a US$ 0.978 million funding commitment, and the Tulsa equity Group (TEG) with the other 70% and the funding commitment for the balance. TEG was owned by Warnock, Brock and a 3rd party whose name escapes me. Warner and Brock are old time oilers, 50 + year veterans, well known , connected in the Oklahoma oil patch and mentors to David Prentice.
The incentive equity is held by the BM management team, designed to keep them in place and reward them so vesting after 5 years from issue ( Dec 2015). The incentive equity is essentially BM management sweat equity and from Dec 2020 was fully vested.
When Covid struck, the old gentlemen decided it was time to stop being active for health reasons , so for a capital return to them of ~US$ 1 million from BM cash reserves, they distributed their equity essentially to BRK so BRK now had 100% of the members equity.
The current shareholding in BM is 51% BRK and 49% BM management.... but BRK is deemed to have full control BM and of all the cash and assets of BM along with majority board control until BM distributes the original invested capital back to the member equity holders. Because of this 100 % " control "condition , BRK consolidates 100% of BM until a distribution is made by Black Mesa of US$1.8 million to BRK, after which distributions are made along the equity positions, effectively 50/50 between BRK and the BM management.
After the full US$ 1.8 million distribution, BRK as the 50% and largest single shareholder will still be deemed to control BM, still will consolidate BM into it's accounts but with adjustments made for not having a deemed 100% controlling interest any more as per the usual consolidated accounting methods.
That is why BM is reflected as a 100% owned subsidiary in the BRK accounts, because it effectively is until the full member equity distribution is made.
The very clever aspects of the BM members and incentive equity are
1)the fact that dilution is limited to the asset level, (we have had enough equity dilution) as BM receive 25% of the BRK WI in the project the BM management pick up for BRK after payout. this ensures / incentivizes the BM team only to find the best quality assets for BRK with the shortest payouts with the most potential.
2) As BRK control BM via the board and majority equity position, it gets back 50% of any WI BM earn from it, effectively reducing the net BM earn in out outside of BRK to 12.5 %
Hopefully I managed to explain that complexity in a simple enough manner
Cheers
Dan
BRK Price at posting:
2.0¢ Sentiment: Buy Disclosure: Held
(20min delay)