CO2 injection, which will be ramped up to 40 million cubic feet per day, will act to repressure the Grieve oil reservoir to a level above the minimum needed to turn the remaining oil mobile.
This will in turn allow the joint venture to produce the proved and probable reserves of 18.6 million barrels of oil from the production wells. First oil production is currently expected to occur in 2014.
"Today is the starting point for the recovery of a significant quantity of Grieve crude oil," Elk managing director Bob Cook said.
"This is the start of the re-pressuring of the Grieve field with a significant quantity of carbon dioxide to be injected and ultimately, the means of producing what would otherwise have been residual oil left in the reservoir"
Elk has a 35% interest in Grieve and had A$3 million in cash at 31 December 2012.
The joint venture is also sourcing for water from deeper reservoirs to further expedite the re-pressuring of the oil reservoir and to reduce the volume of CO2 required to reach minimum miscible pressure.
A new well, Grieve-62, has been drilled and is to be completed and tested in the coming weeks with the expectation that it will provide water necessary to supplement the CO2 re-pressuring effort.
Grieve EOR project
Enhanced oil recovery is a proven technique that delivers almost as much production as primary and secondary oil recovery.
The U.S. Department of Energy has estimated there is 3.2 billion barrels recoverable from the Rocky Mountain region using CO2 EOR.
The Grieve Oil Field was discovered in 1954 by Forest Oil and has produced 30.2 million barrels of oil with the peak rate of 12,000 barrels of oil per day achieved in 1960.
CO2 and water injection are expected to allow the JV to recover the remaining oil at economic rates with Ryder Scott valuing the Grieve EOR Project at US$95 million net to Elk's interest.
It estimated the project would yield revenue of US$420 million net to Elk after the deduction of production taxes and net income before federal taxes and administrative overheads of $234 million.
Besides the CO2 injection, Densbury - a US$6.8 billion market cap EOR specialist - will also acquire 3D seismic over the field in mid-2013 to assist in optimising the future development and reservoir management of the EOR project and may use 4D seismic (repeat 3D surveys over time) to track the accumulation and movement of CO2 as it makes contact with the oil in the target Muddy reservoir.
The Grieve project is is fully funded and is expected to produce up to 1,000 barrels of oil per day net within three years, and possibly up to 5,000 barrels of oil per day by five years.
With the start of carbon dioxide injection, Elk continues to march closer towards first oil at the Grieve EOR project.
Notably, the planned injection of 40 million cubic feet of CO2 per day is higher than the original 30 million cubic feet per day, rising the potential that first oil may be achieved earlier than expected.
Achieving earlier oil production will increase the projects value to Elk with Ryder Scott previously estimating that its base case NPV could increase to US$103.3 million if first oil occurs six months earlier than expected.
Proactive Investors believes that investors are still not fully aware of the benefits of EOR and that there is good reason to be optimistic about the prospects of the Grieve EOR project.
It is also worth noting that Elk is fully funded to first oil for the Grieve project due to its farm-in agreement with Denbury, allowing it reserve its $3 million in cash for its Ash Creek EOR project and other potential transactions.
We continue to be bullish on Elk beyond its current share price of A$0.27.
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