Brookside’s third Oklahoman well flowing gas; sales already live

Brookside Energy’s (ASX:BRK) third successful well on-site its ‘SWISH’ acreage in Oklahoma has begun flowing gas, with acreage located in a major hydrocarbons hub akin to Texas (both states share a border.) 

Under Oklahoman law, once an oil or gas well starts producing, the owners of the well have an indefinite right to use the land hosting the asset until such time gas stops flowing. 

This process is called ‘Held by Production’ (HBP) and is a mechanism designed to allow juniors a fair go to get a foot in the door, so to speak. 

With its foot now firmly in the door, Brookside can finally take a breath, and commence the next stage of operations.

Sales revenue already inbound 

One of the biggest benefits of Brookside’s operations: its wells produce oil, gas, and condensates (natural gas liquids), allowing it to benefit from high gas prices when oil drops, and vice versa. 

The company is already reaping those benefits, with oil currently being trucked to export terminals and gas being sent via pipeline direct to a processing facility. All sales are on the spot market; and currently, gas futures are high. 

Its Rangers well, back in May, hit production rates of over 1,000/boe (barrels of oil equivalent, covering all three hydrocarbon products.)

Volatility subdued, but bound to re-emerge 

It’s worth noting that in 2021, the removal of Chinese lockdowns were a huge factor in triggering the energy crisis that defined world markets last year. With lockdowns re-imposed in China appearing to be the quo for now, it is uncertain when oil will rally again—but is nearly guaranteed to happen.

Worth noting is that Goldman Sachs forecasted Brent crude prices of US$140/bbl only two months ago. JP Morgan, in April, had gone further—it believed at the time the Russia-Ukraine war would push prices up to USD$180/bbl. 

Inflation and demand dynamics may have put a wet blanket on JP’s analysis, which could be supported by Brookside’s performance year to date (YTD)—so far, the company has lost -20% as it absorbs trends impacting the energy sector broadly. 

But investors should note the company has commenced sales into the US spot market in a space of less than two years. 

Last October, before all of the company’s wells were flowing gas, the share price was at 3.5c—today, it is at 1.6c, even though it now boasts a stronger fundamental profile. 

Brookside Energy was outperforming the energy index on a six month basis from early March to early May. Now, it has even more oil and gas, but is subpar to the XEJ. Is Brookside undervalued?