Perth - Brookside Energy Limited (ASX: BRK) (Brookside or the Company) is pleased to provide the following summary of the Company's activities in the world-class Anadarko Basin in Oklahoma during the second-quarter of 2020.
Highlights
The Company reacted quickly to the changed market conditions, reduced costs and restructured and then pivoted to an asset protection and producing property acquisition strategy
Pricing improvement and early signs of stability towards the end of the quarter combined with the strong economics of the SWISH AOI acreage provides potential catalyst for development of the Jewell DSU
Activity in and around the SWISH AOI continues despite market conditions, with eight new horizontal wells targeting the Sycamore and Woodford formations being developed in close proximity to the Jewell DSU
Orion Project Joint Venture completed and early success announced, with the acquisition and successful workover of the Newberry well (and associated 'held by production' acreage) in the SWISH AOI
Production and cashflow continued during the quarter with net revenues impacted by lower realised oil and gas prices
Appointment of Corporate Advisor, CPS Capital Group Pty Ltd (CPS Capital) and announcement of non-renounceable entitlement offer and options placement to strengthen balance sheet and provide working capital for Orion Project acquisitions and SWISH AOI lease renewal and extension program
About Brookside Energy Limited
Brookside Energy is a Perth-based ASX listed company that generates shareholder value by developing oil and gas plays in the world-class Anadarko Basin. Brookside is executing a 'Real Estate Development' approach to acquiring prospective acreage in the Anadarko Basin and adding value to it by consolidating leases and proving up oil and gas reserves. The Company then has the option of selling the revalued acreage or maintaining a producing interest. This model is commonly used by private equity investors in the sector and has been successfully piloted by Brookside in the northern Anadarko Basin's STACK Play. Brookside's US partner and manager of operations, Black Mesa is an experienced mid-continent operator, which identifies opportunities and executes development under a commercial agreement with Brookside. The business model effectively assigns risk and provides commercial incentives to maximise value for both parties. The Company is now set to scale-up its activities and asset base significantly with its operated- interests in the SWISH AOI.
During the quarter the Company continued to successfully execute its land and leasing focused strategy targeting acreage within the southern part of the SCOOP Play. Progress continues to be made on this front with activity during the quarter focused on securing and maintaining operations on high-grade core Drilling Spacing Units (DSUs) within the SWISH AOI.
SWISH AOI Opportunity - Development Continues
Notwithstanding the very challenging pricing environment seen in the early part of the June quarter, the area around and within the SWISH AOI continued to be developed aggressively. Of particular note are several new horizontal wells located immediately south of the Jewell DSU targeting both the Sycamore and Woodford.
These Continental Resources, Inc (NYSE: CLR) operated wells have been drilled and are currently waiting on completion. Brookside Energy has a small Working Interest in the Lexington and Gramercy wells that are targeting the Woodford formation.
These wells are located adjacent to and immediately south of the Continental Resources, Inc, operated Courbet 1-27-22XHW well which reported an IP24 of 1,621 BOEPD (69% oil) and has produced approximately 156,000 barrels of oil equivalent in its first five months of production. These results follow the excellent results produced from the nearby Casillas Operating, LLC operated Flash 1-8-5MXH well (targeting the Sycamore formation), which reported an IP24 of 1,978 BOEPD (86% oil) and has produced approximately 390,000 barrels of oil equivalent in its first eight months of production.
The production results that are coming from this part of the SCOOP Play (Sycamore-Woodford trend) continue to be very supportive of our acreage re-valuation and real estate development approach. The oil and gas reserves that will be defined in these 'stacked formations' will underpin much higher per-acre valuations as prices recover as the area is further developed and operators look to consolidate their positions in what is already some of the most sought after acreage in Oklahoma
The Company's successful leasing, trading and high-grading activities have delivered three DSUs (Jewell, Rangers and Flames) in the core of the SWISH AOI in southern SCOOP. The Rangers, Flames and Jewell DSUs (the SWISH DSUs) are all located in the core of the Sycamore-Woodford sub-play in southern SCOOP in very close proximity to some of the best wells 'drilled and completed' in this area since its emergence as a focus for several of the tierone independents.
During the quarter, the Company implemented a lease renewal and extension program for the SWISH AOI acreage, including the SWISH DSUs. The program is designed to enable Brookside to maintain the dominant position in these key DSUs and extend leases as required so that we are set to commence operations quickly when markets stabilise.
Since the end of the second quarter we have seen some early signs of stability in the oil price and given the very strong economics of the SWISH AOI acreage the Company is closely monitoring this and is ready to respond quickly with our development plans for the SWISH AOI.
Orion Project Joint Venture
During the quarter the Company announced that it had entered into a Joint Venture (Orion Project) with Stonehorse Energy Limited (ASX:SHE) (Stonehorse). The Orion Project was formed to enable Brookside and Stonehorse to exploit opportunities to acquire producing oil and gas properties in Anadarko Basin. The Orion Project is a 50/50 joint venture between the Companies, with Brookside's subsidiary, Black Mesa Energy, LLC responsible for identifying, acquiring and operating the properties on behalf of the joint venture. The joint venture will target natural gas weighted, mature long-life production assets with very low terminal decline and upside that can be unlocked from remedial workover activity and/or unexploited or underexploited behind pipe or deeper productive zones.
The Orion Project offers significant scalability, with the initial focus area extending over 1,100 square kilometres in the Anadarko Basin, covering several historic and currently producing oil and gas fields and many hundreds of vertical wellbores. The Black Mesa Energy team has commenced work on the Orion Project and has been analysing comprehensive data sets covering the focus area to refine and identify acquisition opportunities and discussions have commenced on several targets already. It is clear that the current macro environment has created a unique opportunity to acquire producing properties in an area that we know extremely well at a time in the cycle when prices are below the incentive price for aggressive development.
Joint Venture Structure and Key Metrics
The Orion Project is a 50/50 joint venture between Brookside Energy Limited and Stonehorse Energy Limited, with Brookside's subsidiary Black Mesa Energy, LLC responsible for identifying, acquiring and operating the properties on behalf of the joint venture. The joint venture participants have committed to an initial combined investment in the Orion Project of US$500,000 with the opportunity to expand this commitment as the joint venture grows. The joint venture will be acquiring producing properties and the associated 'Held by Production' acreage, with an emphasis on natural gas weighted production from mature vertical wells with very low terminal decline and substantial remaining economic life. The producing properties will be cashflow positive at the current Forward Strip pricing, with upside that can be unlocked from remedial workover activities or from unexploited or underexploited behind pipe or deeper productive zones.
Joint Venture Objectives
The joint venture will acquire a portfolio of operated, long-life producing wellbores with upside that can be unlocked through low-cost, low-risk workovers. The Companies aim to build out this portfolio at a low point in the commodity price cycle and then add value through operational execution. The ultimate objective is to grow this asset base to complement our existing asset base and leasehold acreage within the SWISH AOI and to increase both operating cashflows and reserves.
Upside from Higher Commodity Prices
Forecast increases in commodity prices provide an opportunity to add significant additional value to producing properties acquired by the Joint Venture. The following chart highlights the scope for pricing upside from today's Forward Price Strip compared to the April 2019 Forward Price Strip. Additional upside may also be realised as natural gas prices potentially increase significantly into the northern hemisphere winter.
Scale of the Opportunity
The Orion Project Joint Venture's initial focus area extends over 1,100 square kilometres in the Anadarko Basin, covering several historic and currently producing oil and gas fields and many hundreds of vertical wellbores. Work has commenced on the joint venture, with the Black Mesa Energy team analysing data from within the focus area to refine and identify acquisition opportunities. The team has acquired, analysed and interpreted comprehensive data sets covering past and current production, geology, reservoir characteristics, wireline and mud logs, drill stem tests, drill core and 2-D seismic. This data and analysis is being used to refine and target opportunities and discussions have already commenced on several targets.
Early Success
Post the end of the quarter, the Company announced that the Joint Venture had successfully closed its first acquisition and completed a workover on the target well. The Joint Venture successfully acquired a 43.45% interest in the Newberry 12-1 well (and associated acreage) located in Carter County, Oklahoma. The Newberry well was drilled and completed in the early 1980's as a vertical well targeting the Sycamore formation and was spaced on an 80-acre DSU. The Newberry well is located within Brookside's Jewell Unit in the SWISH AOI.
This well was identified by the team at Black Mesa as an ideal candidate for the Joint Venture, satisfying the hurdles for investment and importantly delivering HBP acres in the core of the SWISH AOI. Black Mesa has subsequently completed a workover on this well to improve production. These successful operations resulted in a significant increase in daily production volumes (gas increased from 6Mcf/day pre workover to 40Mcf/day and 2BOPD post workover). The well is now cashflow positive at the current STRIP pricing and importantly these operations have added proved oil and gas reserves, additional PV10 value and have significantly extended the wells producing life.
The costs associated with the acquisition of the well (and the associated acreage) and the cost of the workover (totalling approximately US$104,000), were met by the Joint Venture partners (50/50) in accordance with the terms of the agreement. The Joint Venture is continuing to work up a pipeline of opportunities that can be pursued during this period in the cycle. In this regard, the Black Mesa team have already identified a large number of potential acquisition targets within the SWISH AOI that satisfy the Joint Venture's investment hurdles and work to advance these opportunities and add to the list of targets is ongoing.
Production and Cash Flow
Oil and gas production and sales continued during the quarter, with volumes coming from a mix of Drilling Joint Venture wells and from wells funded by Brookside. Net production (volumes attributable to the Company's Working Interest and net of royalties) and net revenues (net of all operating costs, severance and ad valorem expenses) are summarised below.
Net volumes (BOE) were down 6% quarter on quarter, while net revenue was impacted by sharply lower realised oil and gas prices during the quarter (down 52% quarter on quarter). Cash flows from operating activities for the quarter included; receipts from sales of A$92,000 (note that receipts from sales are reported on a cash basis while the net revenues reported in the activities report are reported on an accrual basis based on volumes produced in the quarter). Accrued revenues are not included in receipts from sales for the quarter. Outflows for the quarter of A$390,000; included expenses related to leasehold acquisitions and title opinions, JIB's, drilling and completion expenses and administration and corporate costs.
Corporate
The Company reacted quickly to the changed market conditions that prevailed during the quarter by reducing costs and adjusting and simplifying the corporate structure. With these initiatives in place the Company quickly pivoted to an asset protection and producing property acquisition strategy. The Company has noted some improvement in the pricing toward the end of the quarter (particularly in the price of WTI oil). These early signs of improvement and stability, combined with the strong economics of the SWISH AOI acreage provides a potential catalyst for development of the Jewell DSU and the Company is monitoring the situation closely. Details of the Company's oil and gas interests, capital structure and top twenty shareholders are set out in the attached Appendices.
Contact:
Loren King
Tel: (+61 8) 6489 1600
Email: loren@brookside-energy.com.au
FORWARD-LOOKING STATEMENTS AND OTHER DISCLAIMERS
This announcement may include forward-looking statements. Forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions, which are outside the control of Brookside Energy Limited ('Brookside Energy' or 'the Company'). These risks, uncertainties and assumptions include commodity prices, currency fluctuations, economic and financial market conditions in various countries and regions, environmental risks and legislative, fiscal or regulatory developments, political risks, project delay or advancement, approvals and cost estimates. Actual values, results or events may be materially different to those expressed or implied in this announcement. Given these uncertainties, readers are cautioned not to place reliance on forward-looking statements. Any forward-looking statements in this announcement speak only at the date of issue of this announcement. Subject to any continuing obligations under applicable law and the ASX Listing Rules, Brookside Energy does not undertake any obligation to update or revise any information or any of the forward looking statements in this announcement or any changes in events, conditions or circumstances on which any such forward looking statement is based.
This announcement does not constitute investment advice. Shareholders should not rely on this announcement. This announcement does not take into account any person's particular investment objectives, financial resources or other relevant circumstances and the opinions and recommendations in this announcement are not intended to represent recommendations of particular investments to particular persons. All securities transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments.
The information set out in this announcement does not purport to be all-inclusive or to contain all the information, which its recipients may require in order to make an informed assessment of Brookside Energy. You should conduct your own investigations and perform your own analysis in order to satisfy yourself as to the accuracy and completeness of the information, statements and opinions contained in this announcement. To the fullest extent permitted by law, the Company does not make any representation or warranty, express or implied, as to the accuracy or completeness of any information, statements, opinions, estimates, forecasts or other representations contained in this announcement. No responsibility for any errors or omissions from this announcement arising out of negligence or otherwise is accepted.
ABOUT BROOKSIDE ENERGY LIMITED
Brookside is an Australian publicly held company listed on the Australian Securities Exchange (ASX:BRK). The Company was established in 2004 and first listed via an Initial Public Offering in October 2005. The Company has established deep and valued relationships in the oil and gas sector over the last 10 years through its successful activities in the oil and gas sector focused on the mid-continent region of the United States. Brookside's goal is to build value per share through a disciplined portfolio approach to the acquisition and development of producing oil and gas assets and the leasing and development of acreage opportunities.
ABOUT BLACK MESA ENERGY LLC
Black Mesa is an Oklahoma domiciled limited liability company established for the purpose of identifying and exploiting opportunities in the upstream oil and gas sector on-shore in the United States. Black Mesa was capitalised via an agreement between the Tulsa Equity Group, BRK Oklahoma (a wholly owned subsidiary of Brookside Energy Limited) and the Incentive Members of Black Mesa. Black Mesa is executing a returns-based, disciplined strategy directed at the acquisition of producing properties, lower-risk development drilling opportunities and larger scale entry level acreage plays/concepts. Black Mesa's is leveraging the extensive experience of its executive team and its Board with the latest technology and data sets that are available to identify and evaluate opportunities.
BROOKSIDE ENERGY LIMITED 
