Brookside Energy is producing oil and cash — and investors are piling in
A US oil company lit up the local bourse on Wednesday after telling the market that it’s producing oil — and making money.
Brookside Energy (ASX:BRK) is producing about 300 barrels of oil equivalent (BOE) a day from its Anardarko Basin properties in Oklahoma — and reckons that will net them about $US2 million over the next 12 months.
It only began producing in January.
The 130,000 sq km Anardarko Basin is among the most productive oil and gas regions in the United States.
Brookside shares rose 7 per cent to 1.6c — after touching 1.7c around midday as investors piled into the lightly traded stock and sent trading volumes rocketing.
By the end of Wednesday 43.4 million shares worth $675,668 had changed hands.
The money will be put back into drilling — necessary cash since at the end of December, Brookside had $52,000 left in the bank and was burning $500,000 to $1 million a quarter.
Major shareholders include Mathew Walker, chairman of Cicero Group, who has built an 11.39 per cent investment in the company since August 2016, and Merchant Funds Management which started buying shares in March 2016.
It’s property not oil
Chris Robertson, investment manager at Arthur Austin Advisory, has been buying the stock for over a year and says it’s not actually an oil play — it’s a property investment.
“It’s smack-bang in the middle of what’s called the STACK and SCOOP plays in Oklahoma… in amongst the big guys like Marathon Oil and Devon,” he told Stockhead.
“They buy up small blocks, package it into larger parcels, put a few oil wells on to realise what’s down there, increase the valuation and then sell it off.”
He says the underlying acreage was bought for about $US5000 to $US6000 per acre and will be worth about $US16,000 to $US17,000.
“The big revolution will be when the market realises all this acreage isn’t worth $5000 but worth $16,000.”
Brookside leases about 1800 acres and its analysis of merger and acquisition activity in the area suggests undeveloped acreage is going for about that price.
Managing director David Prentice says last week however, a $3.8 billion merger between Silver Run and Alta Mesa valued the land nearby at $US29,000 an acre and they’re seen land values rise from $1000 an acre to $16,000 in just 12 months.
Ultimately they’d like to sell it for upwards of $50,000 an acre.
Ultimately Brookside will sell to a larger exploration and production company looking for already-proved reserves to add to their portfolio.
Producing and selling oil
In the meantime, they’re producing and selling oil.
The company has nine wells that it started setting up in May last year. It plans to add another 14 to take production up to 1000 BOE/day.
Mr Prentice says it would be reasonable to think that they’d reach this in 12 months, but since they aren’t the operator of the wells — that is, they aren’t the ones running the drilling rigs — they can’t set the pace.
The next 14 wells are either completed, being drilling, or have permits to start drilling. Another four are awaiting permits.
“This is central to Brookside’s business model as it provides an off-balance sheet source of capital for drilling and completion costs associated with the next series of ‘initial wells’,” the company said.
The Anadarko Basin was the biggest US gas producer in the early 20th Century.
It’s still estimated to contain 100 trillion cubic feet of gas and 500m barrels of oil, but that has only been opened up by the use of horizontal drilling techniques that unlocked shale oil in the Permian Basin in Texas.
Brookside’s approach is similar to that of Aurora Oil & Gas, as ASX listed company which bought up 80,000 acres across the Eagle Ford shale structure in Texas and was bought by Canada’s Baytex Energy in 2014 for $1.9 billion.