Brookside Energy Ltd (ASX:BRK) is not a typical ASX-listed oil & gas industry company as it has adopted a real estate development approach centred on a world-class producing region of the US.
Managing director David Prentice outlined the company’s buy, upgrade, revalue and sell model in a presentation this week at the Cicero Group annual Diggers and Dealers Luncheon.
"We understand that the best returns for our shareholders come from the acquisition of undeveloped acreage in the right place at the right time.
"With these factors along with the right structure, we are able to buy at the right price and sell high."
In world-class Anadarko Basin
Brookside, which has a market cap of about $13 million, is in impressive territory - the world-class Anadarko Basin of Oklahoma, which is already a major oil and gas producer and host to Oklahoma's most productive oil and gas plays.
Using the real estate development approach the company is building up opportunities in the basin's STACK and SCOOP plays.
Brookside 'buys low' by leasing all or a portion of the undeveloped acreage in a drilling unit and then 'minimises dilution' through drilling or a drilling joint venture and funds 100% of the cost of this initial or 'parent' well.
Acreage revaluation
In the acreage revaluation equation, the company then 'sells high' by 'booking' 100% of the reserves attributable to the proved undeveloped wells in the unit.
This model is supported by a strong relationship with long-time Anadarko Basin player Black Mesa.
Prentice said: "The application of this PE model for land, leasing and revaluation in a publicly-traded entity is unique in Australia and provides shareholders and investors with exposure to a part of the oil & gas business that has a very long history of generating superior returns for investors in the United States."
Model validated
The business model has been validated in the STACK play with Brookside achieving multiples up to 10-times the average undeveloped acreage acquisition costs.
This model is being scaled up in the SWISH area of interest within the SCOOP Play where the company has established a 2,000-acre position and is targeting 4,000 to 6,000 acres by mid-2020.