Brookside Energy Ltd (ASX:BRK) has formed a new joint venture with Stonehorse Energy Ltd (ASX:SHE) called the Orion Project, which aims to take advantage of opportunities to acquire producing oil and gas properties in the world-class Anadarko Basin of Oklahoma, USA.
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.
The JV 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.
"Fantastic opportunities"
Brookside managing director David Prentice said: “We are delighted to be partnering with Stonehorse on this new venture.
“This time in the commodity price cycle is presenting some fantastic opportunities and we are extremely well-positioned to take advantage of this and to continue to grow our asset base within the SWISH AOI.”
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 with the companies aiming to build out this portfolio at a low point in the commodity price cycle and then add value through operational execution.
“Looking for best opportunities”
Prentice said: “The Black Mesa team has been working hard over the last several weeks sifting through an enormous amount of data looking for the best opportunities and I’m excited to report that this work is already delivering up targets to pursue.
“This is going to be a very exciting initiative for us, and we look forward to keeping our shareholders and the marker updated as we progress it.”
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 commenced on several targets.
The Anadarko Basin is a proven Tier-One oil and gas development province.
Joint venture structure
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 JV 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.
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.
Macro environment
Recent global events that have impacted demand for oil and gas, together with the supply side tensions between the OPEC+ nations have resulted in sharply lower commodity prices.
This has created a significant opportunity for companies that are able to respond to this macro environment.
The current price environment has seen a dramatic drop in the level of drilling and completion activity across the US basins, including Anadarko.
This reduction in activity is likely to have a lasting impact on future US oil and gas production and help to quickly restore the apparent supply-demand imbalance, putting upward pressure on prices.
Brookside sees natural gas prices being a very strong beneficiary of this recovery with some commentators calling for much higher prices later this year and into 2021 and beyond.
This environment has created a unique opportunity to acquire producing properties in an area that the company knows extremely well at a time in the cycle when prices are below the incentive price for aggressive development.
The JV will acquire a portfolio of operated, long-life producing wellbores with upside that can be unlocked through low-cost, low-risk workovers.
Commodity prices
Forecast increases in commodity prices provide an opportunity to add significant additional value to producing properties acquired by the joint venture.
The application of the April 2019 Forward Strip pricing (at around US$55 per barrel) would add approximately 30% to the PV10 value of the Post-Workover forecast cashflows.
Additional upside will also be realised as natural gas prices potentially increase significantly into the northern hemisphere winter.
Stonehorse executive director David Deloub said: “This new venture affords us the opportunity to continue to build out our oil and gas asset portfolio by leveraging off our existing relationships with our JV partner and the technical team at Black Mesa through the acquisition of producing properties within our focus area in a low commodity price environment.”