Brookside Energy Ltd (ASX:BRK, OTC:RDFEF) has set the stage for a productive 2024 as it heads toward commercialising the liquids-rich reserves within its SWISH AOI in the core of the southern SCOOP Play in the world-class Anadarko Basin of Oklahoma.
A number of key recent decisions by the company have laid the foundation for monetising the 11.9MMBOE of low-cost, high-margin reserves.
Monetisation program
These include undertaking a four-well drilling program starting next quarter to concurrently develop the prolific Sycamore and Woodford formations in the Flames DSU and described by the company as “transformational”.
Net production through this Flames-Maroons Development Program (FMDP), is forecast to grow to 2,500 BOEPD, with 78% of this being liquids.
The FMDP is adjacent to Continental Resources' Courbet development from which strong results have been returned, catching the eye of Brookside.
Move to sole-funding
Another key decision of the board is to sole-fund the FMDP, which follows continuous assessment of market valuation metrics along with the company’s current cash balance, strong operating cash flow and zero debt.
Despite fielding strong ongoing development partnership interest from various industry operators, there is limited to no interest in providing capital and the board believes that the sole-funding has strong potential to deliver the best returns for Brookside's shareholders.
“An easy decision”
Managing director David Prentice said: “Since the announcement of our inaugural 2P Reserve of 11.9MMBOE at the SWISH AOI in April 2023 the company has continued to field industry investor enquiries in participating in the development of this asset.
"Interest in this high-margin, liquids-rich asset has been high, however, access to capital by potential partners has been a key constraint on putting sensible offers in front of Brookside and which adequately capture the outstanding value and upside of the SWISH AOI.
"Brookside’s balance sheet strength and high level of free cash flow generation have made ‘sole funding’ the FMDP an easy decision with 100% of the financial returns from our production target of an estimated 2,500 BOEPD to now accrue to Brookside shareholders.
"Our decision to expand on our initial share buy-back using the anticipated surge in cash flow highlights our confidence in this strategy.”
Behind the decision
The sole-funding decision follows a process to test and review current valuation metrics (PDP and PUD values per BOE) and participation premiums (carried interests etc).
It is clear to Brookside from this work that the current driving force behind M&A activities in the sector is capital availability rather than growth through acquisitions.
In addition, the company’s technical team has also been monitoring the results of Continental's successful Courbet full-field development, which is immediately adjacent to and south of the Flames DSU, and early results are extremely encouraging.
This successful 15-well program to simultaneously develop the Sycamore and Woodford formations has now been on production for approximately 6 months and has already produced in excess of 2 million barrels of oil and 11 BCF of rich gas.
Positive outlook
The success of this development, combined with the recent normalisation of service costs, a positive outlook for oil and gas prices in 2024 and beyond, and the success of the company as operator in the SWISH AOI resulting in a strong cash balance, strong operating cash flow and zero debt provide further support for the decision to pursue the ‘sole funded’ approach.
The board has therefore concluded that at this time, sole funding the simultaneous development of the Sycamore and Woodford formations via the multi-well full-field development of the SWISH AOI reserves will deliver superior returns for shareholders.
About the FMDP
The FMDP will see the development of Brookside’s reserves of oil, NGLs and gas within the Flames DSU, via a four-well operated drilling program to concurrently develop the prolific Sycamore and Woodford formations.
Prework and planning for the FMDP has started and the company is therefore well positioned to accelerate activity into the end of 2023 and through to 2024.
Regulatory approvals required for the start of operations are well advanced.
An IADC contract for the drilling of four horizontal wells within the Flames DSU has been signed with Kenai Drilling Limited, and surface rights for a multi-well, all-weather, off-unit location (the Sanford Pad) have been acquired.
Three wells will be drilled from the Sanford Pad, which is under construction -the Fleury, Maroons and Iginla Wells - and the fourth, Rocket Well, will be drilled from the existing Flames Well pad.
It is expected that the first well will spud in the first quarter of 2024 and operations will continue until all four wells have been drilled and casing has been run and cemented.
Simultaneous completion operations will then begin and all four wells will be flowed back at the same time into production facilities on the Sanford and Flames surface locations.
Brookside said drilling of all four wells prior to completion would result in significant cost savings over the traditional method of drilling and completing each well individually.
Additional cost savings will be made by drilling the Rocket Well from the existing Flames Well pad plus potential sharing of existing surface infrastructure.
Production outlook
The FMDP is forecast to produce 715,000 BOE net to Brookside in its first year of operation and average ~2,000 BOEPD net over the same period.
In addition to the current production trajectory, Brookside estimates a total Brookside net production rate of ~2,500 BOEPD (78% liquids) by Q4 2024.
Capital expenditure for the FMDP, including drilling, completion, surface production facilities and tie-in, is estimated at US$40 million (US$26 million net to Brookside’s Working Interest).
Brookside’s operating subsidiary will be operator of the FMDP and a number of successful, well-funded private Oklahoma-based E&P companies, including Continental Resources, will participate alongside Brookside, for their respective Working Interests.
Funding for Brookside’s Working Interest share will come from existing cash reserves and cash flow from operations and the company plans to finalise its current on-market share buy-back and seek shareholder approval in early 2024 for a new buy-back to begin upon the completion of the FMDP.
Cash flow surge expected
The FMDP initiative is expected to see a surge in cash flow as the wells are brought online simultaneously and given the well payout profile Brookside anticipates, this will provide the funding platform for the subsequent phases of development in the three remaining DSUs (Bruins, Jewell and Rangers) plus other potential growth opportunities.