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  • Elk Petroleum Raises $2M As It Drives Towards Grieve Oil Production 0 comments
    Jul 28, 2013 9:06 PM

    Elk Petroleum (ASX: ELK) has received firm commitments from institutional and sophisticated investors to raise $2 million to advance work on its various projects and augment working capital.

    The funds will be raised to a two tranche placement of 12.5 million shares priced at $0.16 each.

    "These funds will be used to support the company's activities while we complete our previously announced plan to raise funds from US-based investors acquiring a 65% interest in the Grieve oil pipeline which would see Elk net circa US$5 million cash whilst still maintaining a 35% interest," chief executive officer Dr. Scott Hornafius said.

    Subscribers will also receive one free attaching option exercisable at $0.25 and expiring on 1 February 2015 for every two shares allotted.

    DJ Carmichael Pty Ltd acted as the Lead Manager to the placement.

    The first tranche of 9,375,000 shares will be issued on 6 August 2013 while the second tranche of 3,125,000 shares will be issued on or about 16 September 2013.

    Pipeline sale

    Elk is selling its Grieve oil export pipeline in Wyoming, which will transport oil from the Grieve CO2 enhanced oil recovery project to Casper for sale, to Natrona Pipeline LLC for US$9 million, or US$5.325 million net after it takes up a 35% stake in Natrona.

    The company has committed to providing the pipeline to Natrona in an operable condition. Natrona will thereafter manage its operations.

    It has also committed to enter a transportation agreement, whereby its share of oil from the Grieve EOR project will be transported through the Pipeline for a tariff of US$2.60 per barrel.

    Notably, Elk's 35% stake in Natrona will allow it to protect its own position should the Grieve EOR
    Project yield upside oil production or face tariff increases.

    Grieve Enhanced Oil Recovery Project

    Elk and operator Denbury Resources (NYSE: DNR) are continuing carbon dioxide and water injection at the Grieve EOR project to re-pressure the Grieve Muddy oil reservoir.

    This is designed to increase reservoir pressure to 3,000psi from the current 500psi, turning the remaining oil in the reservoir mobile.

    Future activity includes optimising the field development plan; constructing production facilities; complete flowline and wellwork; and bringing electrical power to the site.

    Enhanced oil recovery is a proven technique that delivers almost as much production as primary and secondary oil recovery

    The Grieve project 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.

    First oil is expected in 2014.
    Grieve has estimated proved and probable reserves of 18.6 million barrels of oil in the target Muddy reservoir.

    Notably, Ryder Scott has valued the project at US$95 million net to Elk and expects the company to achieve net annual cash flow of US$29 million by 2016.

    Analysis

    The $2 million placement highlights the growing recognition that Elk's Grieve EOR project is receiving.

    Along with the planned sale of the Grieve export pipeline, which will net a further $5.325 million, Elk will be well placed to progress its projects as it moves towards first oil production from Grieve in 2014.

    At its current share price of $0.20 and market capitalisation of $33.59 million, Elk still offers a buying opportunity into a near-term oil producer with a project valued at close to $100 million.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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