Investors in Brookside Energy Ltd (ASX:BRK) have welcomed an independent reserves certification for the company’s holdings in the SWISH Area of Interest (AOI) of Oklahoma’s world-class Anadarko Basin that provides a pre-tax NPV10 net reserve value of US$170.5 million (A$254.5 million) or A$0.05 per share.
The strong economics are based on 11.9 million barrels of oil equivalent (BOE) proved and probable reserves (2P) net to Brookside’s working interest and net of royalties with gross reserves of 24.9 million BOE.
These net reserves also include total net sales of US$629 million (A$939 million) and pre-tax future net income of US$336.2 million (A$501.8 million), which is net of US$151.8 million (A$226.6 million) in capex.
Shares jump
Shares have been as much as 38.5% higher intraday to $0.018, a high of almost nine months.
Net reserves at December 31, 2022.
Providing further potential upside to Brookside, the net reserves do not include volumes attributable to acreage acquired in future pooling, equal to about 20% of the current net reserves, or from results from ongoing work in the Bradbury AOI, where the company is set to begin production testing of the operated Juanita Well.
Independent estimate
Brookside engaged Haas Petroleum Engineering Services, Inc., based in Dallas, Texas, to provide an independent reserves estimate for Brookside’s acreage in Stephens and Carter counties, Oklahoma in the SWISH AOI.
Summary of key project economics.
The company is the operator of 3,760 working interest acres grouped into four DSUs within the SWISH AOI, being the Jewell, Rangers, Flames and Bruins DSUs.
Net reserves include 20 undrilled locations, four of which are categorised as proved undeveloped reserves, with the balance classified as probable reserves.
All the undrilled locations are within Brookside’s operated Drilling Spacing Units (DSUs) in the SWISH AOI.
In respect of formations in a DSU not yet drilled and produced or with limited existing or nearby production data, for example, the Woodford Formation in the Rangers DSU, all undrilled well locations in that formation are classified as probable reserves.
Brookside’s expectation is that once a formation has been drilled in a DSU, production confirmed and adequate production data gathered for that formation, all undrilled locations in that formation within that DSU will be reclassified as proved undeveloped reserves.
STACK and SCOOP plays in the Anadarko Basin of Oklahoma showing the SWISH AOI.
Net reserves economics assume development of a total of 20 gross well locations across the company’s four DSUs within five years, with funding from cash flow resulting in maximum negative cash drawdown of around US$17 million in year two of this development scenario.
The timing of drilling to fully develop the net reserves in this development scenario is expected to be comparable to Brookside’s development drilling to date.
Held-by-production
All the company’s DSUs, except for the Bruins DSU, are held-by-production (HBP). Once the Bruins DSU has been pooled and a well drilled and brought on production, this DSU will also be classified as HBP.
Operated production (1,879 BOE gross in the December quarter of 2022) is primarily from three SWISH AOI wells, the Jewell, Rangers and Flames wells, with a fourth well, the Wolf Pack Well, beginning production and still under flowback in April 2023.
Reserves from non-operated production in the SWISH AOI are included in the net reserves estimates and are operated by Continental Resources Inc., Cheyenne Petroleum Co. and Citizen Energy III LLC.
Map showing the location of Brookside’s four SWISH AOI DSUs in Stephens and Carter counties, Oklahoma.
On-market buyback
Brookside will be undertaking an on-market buy-back of up to 500 million ordinary shares that represent about 9.97% of the shares on issue.
Based on yesterday’s closing share price, the cash cost would be approximately A$6.5 million.
This comes with the company’s board believing that the company’s market capitalisation (around A$65.2 million at yesterday’s close) does not reflect the underlying asset value, particularly considering recent developments:
- Recently announced 2022 full-year financial results (A$53 million in revenue, after-tax profit of A$15.1 million and EPS of 0.35 cents); and
- Today’s announcement of independent reserves certification for the SWISH AOI acreage delivering US$170.5 million or A$0.05 per share pre-tax NPV10 net reserve value.
Important new initiative
This share buy-back is considered to be an important new initiative within this overall capital management strategy.
It is intended that the share buy-back commences no earlier than May 15, 2023, and that it will be completed by December 31, 2023.
CPS Capital Group has been appointed to conduct the share buy-back on Brookside’s behalf.
Shares will only be bought back at such times and in such circumstances as considered beneficial to the efficient capital management of the company and the buy-back is, therefore, dependent upon market conditions, volumes and other relevant factors.