There has been fairly constant and mostly negative commentary regarding he Rangers capital raise . Comments like , " the raise was unnecessary", " the timing was shiite and should have been done after the Jewell results", " small shareholders ripped off again and it should have been a rights issue", " if Latshaw wasn't used then why the rush for a cap raise", " the cap raise killed the SP momentum ' and " no need for the in the money option give away."
I can't speak for others but more me it is becoming tiring to read this stuff over and over so I decided to " clear the air " and get as much clarification from David.
As mentioned before , I agree with the criticism that the ITM options were a much too generous component of the raise, have expressed that to David and have moved on.
Why didn't BRK contract the Latshaw rig?
The Latshaw rig was originally planned to be used for Rangers. The drill plan was always to keep the drilling momentum going and complete the Jewell, start preparations for Rangers as the Jewell was cleaning up and in flowback and eventual production. Whilst the company has different scenarios the flowback may follow, ie the well reaching max flow within a week or 2 after flow back commences, to a month or 2 before that happens, service companies do not put their operations on hold waiting for mother nature to decide if the well will hit stable production quickly or slowly.
If you watch the completion drone shot video posted by BRK you can see Rig 14 stacked on the BRK pad. When you engage a rig for a single well, you pay for the rig mobilization and demobilization, unless the rig immediately goes to another job , when the second company just pay for the mobilization to their pad. Because BRK wanted the Latshaw 14 rig for Rangers, but not back to back, ( ie, finish drilling one well and immediately move to another location ) offered Latshaw to keep the rig on the pad to avoid the US$ 200,000 demobilization bill to move the rig back to the Latshaw yard. BRK would only pay the smaller mob fee to move the rig to Rangers to which Latshaw agree. In the meantime, Latshaw received an offer from another operator for a multiwell program so they took that opportunity .
Why the Cap raise and the timing?
As luck would have it, the Kenai rig became available... this rig being more modern, and better suited to drilling a deeper vertical and longer lateral which the Rangers well is, was contracted by BRK. To ensure BRK secured the rig, they needed to have the cash in hand .
The original plan was for SHE to participate in Rangers along similar lines to their participation in Jewell. But the SHE board on late notice decided to change direction and not participate.... we now know that they are looking to diversify and look for Australian exposure as per the last SHE announcement. Had the original plan being followed, BRK would have been funded to drill the Rangers well and would not have needed to raise at the time they did. The speed at which they did the raise and timing of the raise was dictated by the Latshaw rig leaving, the fact that they needed to secure the Kenai rig when it became available , and the fact that SHE decided not to participate.
When BRK learned that SHE were not going to participate, the funding dynamics for the Rangers well changed .If they then decided to wait until the results of the well were available ( not quite there yet), the Kenai rig would have also been lost and the Rangers well would have been delayed. A rights issue to shareholders would not have been completed early enough to secure the Kenai rig and this rig becomes available in perfect timing for the BRK drilling schedule.
Hopefully, this puts some color to what, where, how and why BRK did what it did in terms of rig selection, reason for the CR issue type and timing.
Cheers
Dan
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