Brookeside energy announced some further expansion plan details this morning. My summary below-

Key Highlights:

• Brookside Energy announced the commencement of the Full Field Development (FFD) for its SWISH Area of Interest (AOI), planned to start in early 2025.
• The development is projected to significantly boost the company's net production to approximately 4,500 barrels of oil equivalent per day (BOEPD) by FY2028, a substantial increase from current levels.

Financial Implications:

• The development is forecasted to yield significant financial growth with revenue expected to reach US$104 million and net income estimated at US$51 million for FY2028, assuming a West Texas Intermediate (WTI) crude oil price of US$70 per barrel and natural gas at US$2.50 per thousand cubic feet (Mcf).
• Over five years (2024-2028), the SWISH AOI is expected to generate cumulative revenue of US$360 million and cumulative net income of US$156 million.

Operational and Development Details:

• The FFD involves a 3-year, 16-well pad drilling development project in the Bruins, Jewell, and Rangers Drilling Spacing Units (DSUs).
• This development is intended to exploit approximately 8.5 million net barrels of oil equivalent (BOE) of low-risk, high-liquids content reserves.
• The company plans to fund this ambitious project through forecasted cashflow and a modest credit facility of up to US$15 million.

Cost Efficiency and Market Leverage:

• The company highlights the operation's low costs and high liquids yield as significant advantages, especially if oil prices rise.
• Operating expenses are detailed to be around US$9.09 per BOE, with lease operating expenses, production & ad valorem taxes, and gathering & transport costs included.

Reserve Updates and Certifications:

• Brookside provided an updated independent certification of its reserves, indicating a robust position with proven developed producing reserves increasing by 40% year-over-year and total proven reserves up by 10%.
• The reserves are expected to provide a strong base for sustained production and financial health.

Management Commentary:

• Brookside's management expressed confidence in the SWISH AOI FFD's potential to transform the company into a substantial oil producer. They emphasized the project's role in enhancing shareholder value through significant free cash flow, enabling further growth and capital return initiatives such as buy-backs.

Conclusion:

• This announcement marks a strategic step for Brookside Energy in scaling up operations and capitalizing on its resource base, which could significantly enhance the company's production capacity and financial returns by FY2028. Investors should monitor the progress of the FFD as it begins in early 2025 and progresses towards the significant production and financial milestones projected for 2028.

I fired off some questions to management. Below are the questions & their responses.

1. Can you provide more details on the progress and timelines of the Flames-Maroons Development Plan (FMDP) and any other significant projects in the pipeline? As per our announcement on 3 April, the first of four FMDP wells has been drilled and cased and drilling has commenced on our second well. All wells will be drilled first before being completed and then being brought online simultaneously late Q3 / early Q4.

How does the company assess and mitigate risks associated with its expansion plans, such as the FMDP? Fundamentally we look at the economics of the project vs chance of success and weigh that up against capital commitments our internal operational capabilities. If the project doesn’t meet our internal hurdles then it doesn’t proceed.



2. Given the capital-intensive nature of the FMDP and other initiatives, how does the company plan to ensure adequate funding without over-leveraging? We constantly examine our cash position plus forward cashflow and balance our operations to ensure that we have not overextended ourselves.

Can you elaborate on the company's strategy to manage its cash flow and maintain financial stability amidst its expansion efforts? The goal is to grow production and ensure sustainable cashflow so that the company is financially strong enough to take on other opportunities as they come up. Additionally, it is about picking the right projects that work in a low oil pricing environment.

3. Can you give more clarity on the average all-in sustaining cost of production? From our recent Brisbane Conference presentation ASX:BRK - Brisbane Mining Conference Presentation (brookside-energy.com.au)

What measures are in place to ensure operational efficiency and cost management, particularly in terms of reducing the all-in sustaining cost? Costs and operations are constantly reviewed by the team to ensure optimum company performance. The FMDP is our most efficient operation to date bringing significant cost and time savings to the company. The bottom line is that Brookside is a low cost operator with a very small team relative to its production, revenue and reserves. 

4. How does the company hedge against commodity price volatility, and what strategies are in place to maintain profitability during downturns in oil and gas prices? Ultimately we hedge by undertaking low cost projects that will generate high rates of return in low pricing environments.

5. What long-term strategies are in place to ensure sustainable growth and value creation for shareholders? The FMDP is the first step in sustainable growth and future shareholder value creation. Keeping in mind that the FMDP is only ~17% of our reserves bases indicates that there is a clear and long runaway for future growth. Additionally the company is always on the look out for new opportunities.

6. What are the key risks the company foresees in the near to medium term, and how are they being managed or mitigated? Commodity pricing is always a risk though oil prices have strengthened recently and are projected to remain strong for the near-medium term.

7. How does the experience and expertise of the management team and board support the company's growth and strategic objectives? The board and management team have broad and wide ranging commercial, financial and oil and gas experience ideally suited to the growth and strategic objectives of the company. About - Brookside Energy Limited (brookside-energy.com.au)

8. Has the management considered a share consolidation? Yes, the board continuously reviews and considers the Company's capital structure, as it relates to our current shareholder base and with a view to a future where the Company has greater institutional representation on its register. At this time, the Board has not made decision to consolidate the issued capital.

Brookeside Energy, an oil and gas exploration company seem to demonstrate strong operational performance, strategic expansion plans, and attractive valuation.

As of 4/4/24 they are approx. $72m market cap, $51.5m Rev & $16.6m NPAT in the last FY (which for BRK ended 31/12/23). They had $26.2m cash in the bank at that point and a cash flow from operations of AU$18.95 million for the year.

Operations

• The company's focus on the Anadarko Basin in Oklahoma, USA, coupled with its Flames-Maroons Development Plan (FMDP), has it positioned with the opportunity to significantly grow its production and revenue.

Expansion:

• The FMDP represents a significant growth initiative, aiming to monetize ~17% of the company's net reserves and substantially increase net production. Full operational capability is expected by Q4 2024, which could serve as a catalyst.
• With the FMDP, Brookeside aims to increase its production by 2,500 barrels per day. Currently “gross operated daily production of 2,269 barrels of oil equivalent (BOE) per day and Group net production (including non-operated production) of 1,410 BOE per day, including 64% liquids”
• Brookeside plans to fund the US$26 million required for the FMDP through existing cash reserves and cash flow from operations, indicating prudent financial management and operational cash generation capability.

Valuation:

• Currently trading at a P/E ratio of approximately 4.01 and a P/CF ratio of approximately 3.52, Brookeside's valuation is attractive relative to its growth prospects.
• Considering the oil and gas industry standard market multiples, there is significant upside potential if Brookeside's multiple is re-rated closer to industry averages. A re-rating could reflect market recognition of the company's growth trajectory, operational efficiencies, and successful execution of expansion plans.

The investment thesis would be that Brookeside Energy offers a compelling growth story backed by strong operational fundamentals and significant upside potential from expansion plans and potential market re-rating to more standard industry multiples.