Elk Petroleum Ltd. (AX:ELK) has completed the restructuring of its JV agreement with Denbury Resources (NYSE:DNR) for its 12.3mmbbls 2P Grieve enhanced oil recovery (EOR) project. A substantial equity plus debt injection in June/August 2016 will fund the Grieve project to first production in late 2017 or early 2018, with Denbury covering any cost overruns. Including additional equity from a shortfall placement, we estimate a base case valuation for Elk based on 2P reserves of A$0.15/share, with upside from both 3P reserves (an additional A$0.06/share) and 3C contingent resources (an additional A$0.17/share).
Restructuring complete
Elk has completed the restructuring of its JV agreement with CO2 EOR specialist Denbury for its Grieve oil development, increasing Elk’s entitlement interest in the project from 35% to 49%. Once in production in late 2017 or early 2018, Elk will receive 70% of the first 2mmbbls of production, while enjoying the benefits of low cost CO2 feedstock (to cover the field 2P reserves) and additional income from Elk’s 100% owned oil export pipeline.
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