Now that the funding for the Jewell well has been raised, and within a single day Brookside's market awareness has gone from obscurity to at least having some profile on the back of this raise, I thought it may be a good idea to discuss what holding BRK stock can actually mean .
Firstly, the resource / reserve position.. most new investors probably have been drawn to the 11.6 Million BOE resource number and the potential value embedded there for the SWISH acreage . Many may not be aware that in Dec 2018, BRK produced a maiden reserve report for it's non SWISH PDP, PUD and probable reserves of 3.45 million BOE .
which roughly after 2 years production I have estimated ~ 3 million BOE remain.
BRK also hold ~280 net acres in the Bullard DSU in Garvin county for which Rimrock, the operator have not yet apparently furnished a reserves report. This acreage holding, for which no value is ascribed to BRK is significant in that the Bullard well has been one of the best performing wells it it's 24 drilled well portfolio. ( excluding acquired legacy and workover wells) , and to estimate the unit reserves I have used the rule of thumb for estimating PUD reserves for a typical 2 section drilling unit in the STACK and SCOOP of 10 million BO per 1280 acres. BRK sold 15% of their 20% interest in the Bullard well bore to SHE in late 2019 but retained all the PUD reserves so there should be ~2 million BOE PUD reserves attributable to BRK's acreage position.
So , on a very conservative basis, BRK is holding ~16.6 million BOE of PDP, PUD and prospective reserves/resources. I am excluding any reserves attributable to the Orion project , despite the material reserve potential of the Thelma, Bradbury DSU.
The significant 11.6 million BOE SWISH prospective resource is classified " resource" rather than " reserve" for SEC compliance , but technically is a reserve, because the hydrocarbon bearing reservoirs , specifically the Sycamore limestone and the Woodford shale have literally had hundreds of historical vertical wells drilled through them within the BRK drilling units, proving the presence of hydrocarbons, but these hydrocarbons need modern horizontal, fracked wells to extract the oil and gas. This is why the DP refers to the operated DSU program as exploitation, not exploration drilling and to achieve that compliance and convert the resource to a PDP , PUD and probable reserve, only three wells, one in each of the Jewell, Flames and Rangers DSU's needs to be drilled and completed.
In regards to the 11.6 MMBOE prospective resource/ reserve, it is important to note that number was generated by Black Mesa , BRK's 50% owned USA operating company before the drilling around / adjacent DSU's was performed by offset operators. This drilling not only proved the BRK SWISH concept, but the results suggest that the BRK number could be very conservative.
The company has highlighted the Flash and Courbet wells as examples of the potential of the Sycamore and Woodford zones in regard to their productivity .
Below are the production figures and graphs for the Flash well.
and the Courbet well
From the Jewell fund announcement, the SWISH AOI with DSU and non operated acreage locations
Points of interest to note, as graphed, the green bordered grey shaded squares are the 3 operated drilling units. The other grey squares are sections where BRK has minority, non operated positions, but , and here is the rub, they originally were targeting 8-10 operated drilling units here when they started picking up this acreage in late 2017. They identified this area and began leasing 6 months before any serious competition woke up to the opportunity, but because of the lack of capital BRK couldn't lease aggressively enough so as the competitors charged in, especially Continental Resources , Casillas and Echo Energy they had to cherry pick and trade acreage to be able to secure the 3 units they have. (Casillas and Echo were private equity who were taken out by Continental over the last 12 months)
There is further opportunity for BRK within this AOI because as they drill and prove up their 3 DSU's , the company believes they will be presented opportunities by acreage holders to drill their leases before the 3 year lease expiry dates. Leases are negotiated for a 3 year period , which can be extended by 12 months if a DSU is established and a well is spudded in that 12 months. There are a large number of acres held by entities that have business plans to acquire and flip acres with no intention to drill. COVID has wrecked those plans and may small , undercapitalised operators ( like BRK were prior to their and SHE raises) will lose their leases due to lack of drilling plans. BRK is confident they will get a large number of phone calls from these groups, some of which are large holders of acreage in the grey squares above.
The point of this post was to highlight the real potential of significant value add that will come to the company from it's upcoming operations in the SWISH AOI over the next year or so, now that the lack of capital handbrake has been released.
After the initial wells in each DSU , subsequent production initiation and booking proven reserves, BRK will have the option to monetize. These options are selling assets at ~ the NPV 10 value, ( SHE will be free what they want to do with their well bore interest in each of the 3 wells), participate in the 20 well drilling program via a free carried ( eg 25% free carry Wi) farmout to a major player like CLR, or fund their share ~ eg 50% + WI in the 20 well program.... or corporate action via takeover or merger.
The question is how will the company monetize that value created?
One thing for certain, exciting times ahead .
Cheers
Dan
BRK Price at posting:
1.0¢ Sentiment: Buy Disclosure: Held
(20min delay)
