Wolf Pack ... so far , so very good!, page-23

Hi mate

In regards to your question regarding the BOE pricing, you are 100% correct. It is effectively a weighted average of of the 3 streams of product sold. Right now the largest weighting in the mix is oil so changes in WTI have the largest effect.


For the Dec quarter, production of 160,000 BOE had a liquids ( oil and NGLs ) ratio of 67%. For the Mar quarter, the production of 164,000 BOE had a liquids ratio of 74%. The increase in the liquids ratio is due to the high percentage of oil in the WP stream (~80%). Currently the shrunk gas/ NGL ratio in absolute terms is ~1 :0.9 so we can roughly work out the individual stream breakdowns.


For the March Q with liquids being ~74%, that implies shrunk gas is ~26%, so NGl's will be ~23% leaving oil at ~51% of the total stream. So the production breakdowns in March will approximately be

Oil ~83,000 barrels
NGL~38,000 Barrels
Gas ~$43,000 BOE

I haven't got the average prices for each stream during march but for calculation purposes, lets use Oil at US$ 70 per barrel, NGL US$ 40 per barrel, Gas at $3 per mcf.

We need to convert the gas price to BOE using the ratio of 1 BOE gas= 6mcf, so at US$ 3 per mcf, a BOE gas sells at US$ 18.

Using the % the BOE price works out to be:

Oil = 0.51 x US$ 70= US$35.7
NGL=0.23x US$40= US$9.2
Gas =0.26 x US$ 18=US$4.7

or $49.6.

To see the effect of any price change, on the BOE price, if gas goes to US$ 6 per mcf, that increases the price per BOE to US$36. So the BOE contribution in the BRK stream goes from US$4.7 to 0.26xUS$36 to US$ 9.4 lifting the total BOE price for the 3 streams t0 US$ 54.3.

So a doubling of the gas price increases to total weighted average price by ~9.5%

Conversely, a $10 lift in the oil price to US$80 will lift the oil contribution to US$40.8 which would lift the BRK stream price to US$54.7 per BOE. This means a ~14.3 % lift in the oil price increases BOE price bu 10.3 %.

We can see that right now, it is the price of WTI which affects the price received by BRK for it's product stream more than any other by a significant margin..... hope that makes sense.

For the IRR and effect on the share price? Can't really comment as the market does what the market does. But will make the following points.

One of the stated negatives and main criticisms of BRK was the market couldn't " value" BRK ... well , that is no longer the case. Right now the primary market for BRK shares is retail. Is retail logical or emotional, does it lead or follow? BRK is no longer a spec stock but certainly still has the penny dreadful status.

If the IRR gives institutions confidence to buy into BRK, then that will probably not happen over night and may need to consolidation to rid BRK of it's penny dreadful status.

A monetisation event would help rerate the stock you would think, but I guess would depend on the nature and magnitude of the event... a full sale for cash for the entire SWISH asset vs a part sale or part JV for example.

Regardless, you would think the buy back will backstop the share price, the IRR has given the market and hopefully institutions the confidence there is real value, and Wolf Pack will bring in a bucket load of cash over the next 12 months in addition to the bucket load of cash the HBP wells will also bring.

Cheers

Dan