Thanks Thunder. The wells do need to make money (in this case US$34/boe operating netback - see Appendix to ASX release) so that the company can then prove and book economic reserves. This is the key. One well is great but it is the offsetting proved undeveloped wells that BRK will be able to book reserves on (and that are not subject to the Merchant funding deal) that create the real value. From what I have read the ratio of proved undeveloped wells to a single producing well could be anything from 6 :1 to as many as 20:1. So if we do some very simple calcs. and assume 8 proved undeveloped wells to this initial well (and according to the EUR in the Appendix to ASX release) they will be able to book say 83,000 boe in NET proved reserves from this small interest in this one well (3.3million boe on the whole 500 acres that they have picked up so far). These reserves will generate almost US$80 million in NET cashflow over time and will be valued accordingly. hang on to you hat if the oil price eventually goes up - these good numbers just get better. Thats the game, thats how they get the company re-rated. Hope this helps.
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Thanks Thunder. The wells do need to make money (in this case...
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