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RESEARCH: Real Estate Approach In Anadarko Basin

FYI | Feb 04 2020

Pitt Street Research finds Brookside Energy has adopted a real estate approach to grow in the Anadarko Basin

By Pitt Street Research

Brookside Energy Ltd ((BRK)) is a Perth-based energy company with exposure to the most productive oil and natural gas plays (STACK and SCOOP) in Oklahoma’s Anadarko Basin.

BRK adopts a real estate development approach to lease undeveloped acreage, consolidate leases and prove up oil and gas reserves.

Thereafter, it sells the revalued/appreciated acreage or maintains a producing interest. This approach has allowed BRK to grow in the Anadarko Basin using an asset-light model.

Investment case

The STACK and SCOOP plays in the Anadarko Basin have remained lucrative to E&P players over the past few years, owing to their low acreage cost (due to being relatively undeveloped) compared with more mature plays in the Permian Basin.

Post the announcement of its maiden reserve estimates in the STACK play, BRK is now poised to scale up its asset base significantly with its operated interests in its SWISH Area of Interest (SWISH AOI).

Prices for undeveloped acreage in the SWISH AOI have already moved higher as a result of A&D activity in the secondary market and they are expected to continue this upward trend with the development of BRK’s first operated unit (Jewell), coupled with robust initial production results from the wells in which it holds a non-operated working interest.

Valuation range of $0.03–0.04 per share

We value BRK at $0.03 per share base case and $0.04 optimistic case using a DCF approach, broadly based on BRK’s guidance on the potential buy and sell of land acreage and acreage pricing as well as BRK’s maiden estimate of oil and gas reserves.

We believe BRK has a significant scope for re-rating driven by increase in land acreage, higher acreage prices and better flow rates from existing wells.

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