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Lots of people seem to doubt my negatively on $BRK. So, at THEIR request, I am doing more on a deep dive on why I rate $BRK an avoid.
So I have put this thread together.
*Note, I am neither long or short on $BRK and have no plan on doing either. This is just MHO.
So I have put this thread together.
*Note, I am neither long or short on $BRK and have no plan on doing either. This is just MHO.
2) The numbers. $BRK have 4.345B shares Diluted.
1.57B options 1.1c.
At 2.5c a share is has a cap of $108M.
$17m in cash will be raised from options
$8m in raise to pay for drill.
After drill EV of about $80m.
1.57B options 1.1c.
At 2.5c a share is has a cap of $108M.
$17m in cash will be raised from options
$8m in raise to pay for drill.
After drill EV of about $80m.
3) Current trading. After a big cap raising (including free options), we are seeing lots of chatter on SM. There has been a clear distribution from Investment houses to retail as shown in the below numbers (note the Commsec buying).
4) Their plan. To drill up to 20 horizontal wells over 5 years into a non-conventional shale target to extract oil and gas. Unconventional targets have high drop off production rates. As seen by the companies own modelling.
5) The company has stated that the "high case" for the well to be repaid after 17 months, and they have also used payback of 2 years (this is likely their mid case).
6) The issue with this payback is that these wells drop off really fast. Note that at the 24 month mark they have modelled 200K produced, yet 16 months later they have modelled 240K produced. Around 2.5K a month (less than 100bbl a day after 24 months).
7) Even at 100bbl a day, and $20 clear profit, these wells are lucky to make $700K a year profit. In reality the running costs tend to be so high, that in sub $60 a barrel, then can be turned off (shutin) all together. Example Freedom $FDM.
8) $FDM has a similar unconventional US oil play. Raised more than $50m on the same plan. They drilled 15 wells, with a target of 300 wells. They are gone under. Even 15 producing wells could not save them. These wells are high cost plays.
9) The $FDM wells produced over 1,200 barrels initially. But, unconventional wells drop quickly, and 1,200 was 400 within 3 months, and declining.
10) $FDM thought they were onto a good thing too. $4-5M a well, well paid off with 12 months. 300 wells. Improvements in drilling technology. Truth is, unconventional wells are the dogs breakfast of the oil industry. High cost.
11) I have seen many US based unconventional oil play blow up on Retail investors over the years, and I see $BRK being not much different. At $80m EV, $BRK would need to be a $20m profit company at a minimum due to oil price risk and limited land holdings.
12) For this to happen, each of the 20 wells would need to be $1m in profit per annum. The BRK modelling does not show that this is possible with only 2.5K month production at 3 years (and declining).
13) The most likely scenario is a similar one to $FDM. The hopes and dreams of producing oil will see lots of money raised and lost. For holders I hope I am mistaken, but know the facts before you buy (or continue to hold).
