Brookside set for significant boost to oil output, plans more cash back for shareholders

Brookside pursues commercialisation of 12 million BOE low-cost, high-margin reserves
Transformational four-well drilling program to start in Q1 2024
Brookside plans another on-market share buyback

Special Report: Cashed-up Brookside Energy is moving to capitalise on its nearly 12 million barrels of oil equivalent (BOE) low-cost, high-margin, liquids-rich reserves in the SWISH Area of Interest (AOI) in Oklahoma with a self-funded four-well drilling program aimed at boosting production.

Brookside Energy (ASX:BRK) will spud the first of four wells in the first quarter of 2024, with all four wells expected to be in production later in the year and substantially increasing output by 67% to 2,500 BOE per day (78% liquids) .

These independent 2P reserves are worth $US170.5m ($259m) net to Brookside, dwarfing its enterprise value (EV) of just $35m.

Importantly, this boost to production places Brookside in the top tier of small-cap ASX oil and gas producers. It will also enable the company to return more cash to shareholders via another planned on-market share buyback.

Brookside is one of few junior producers in the position to be able to sole fund the development of the prolific Sycamore and Woodford formations in the Flames DSU (FMDP) thanks to its strong cash flow generation, no debt and unhedged position providing exposure to rising oil prices.

“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,” managing director David Prentice said.

“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 has 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.”

Brookside has been closely watching Continental Resources’ nearby successful Courbet full field development, located immediately adjacent to and south of the Flames DSU, and early results have been extremely encouraging.

The successful 15-well program to simultaneously develop the Sycamore and Woodford formations has now been on production for about six months and has already produced over 2 million barrels of oil and 11 billion cubic feet of gas.

The success of the Courbet development, combined with the recent normalisation of service costs, a positive outlook for oil and gas prices in 2024 and beyond, and Brookside’s success in the SWISH AOI further support the company’s decision to sole fund the Flames DSU development.

Transformational drilling program

A drilling rig has been secured, construction of a new three-well all-weather pad is in progress, and drilling permits have been issued.

Capital expenditure for the FMDP – inclusive of drilling, completion, surface production facilities and tie-in – is estimated at $US40m, of which Brookside will cover $US26m based on its working interest.

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.

Brookside estimates its total net production rate will reach 2,500 BOEPD (78% liquids) before the end of next year.

Anticipated growth in cash flow and rapid well payouts will support subsequent development phases of the Bruins, Jewell, and Rangers DSUs, and other growth opportunities.

The company plans to finalise the current on-market share buy-back and seek shareholder approval in early 2024 for a new buy-back (beyond the 10% in 12-months limitation) to kick off on completion of the FMDP.

This article was developed in collaboration with Brookside Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.