The offer is partially underwritten and eligible shareholders will be able to subscribe for one new share for every one share held on the record date.
Elk recently mandated a financier to provide US$55 million to fund the restructure of the Grieve CO2 Enhanced Oil Recovery (EOR) Project in the U.S.
Securing financing is an integral step to finalising the restructure, with joint venture (JV) partner Denbury Resources, and getting the project operational.
Brad Lingo, managing director, commented:
"The launch of the entitlement offer today represents the final major plank in Elk's strategy to deliver the necessary platform for Elk's transformation into an oil production company.
"The successful completion of this offer and the debt financing will see Elk fully funded and well placed to create shareholder value from the Grieve Project and the other pipeline of projects and initiatives within the company."
Rights issue details
The partially underwritten, non-renounceable is available to eligible shareholders on the basis of one new share for every share held at the record date of 8 June, 2016.
The rights issue will open on 9 June, 2016 and close 5.00 pm Sydney time on 21 June, 2016.
Elk's largest shareholder, Republic Investment Management Pte. Ltd., has agreed to support the offer by sub-underwriting circa $9.7 million of the lead manager's $15 million underwriting obligation.
Any rights not taken up are proposed to be issued under a shortfall facility.
Elk is currently in the process of restructuring the Grieve EOR JV with Denbury Resources.
Elk has a unique focus on oil field redevelopment with proven technologies, and is the only ASX-listed EOR company.
EOR uses technology to extend the life of an otherwise depleted oil reservoir which makes the Grieve JV an attractive opportunity even at low oil prices.
Elk currently holds a 35% working interest in the Grieve Project located in the U.S. state of Wyoming.
Denbury is the operator of the project and holds the remaining 65% interest.
Elk is in the process of completing restructure documentation expected to finalised by 30 June, 2016.
Under the terms of the restructure, Elk is to provide US$55 million, the final capex necessary to complete the development of the Grieve Project.
Elk recently mandated a financier to provide US$55 million in debt funding through a senior loan facility.
The restructure is to increase Elk's interest in the Grieve Project to 49%.
It will give Elk the right to receive an effective 70% of the net cash flow of the first 2 million barrels of production from the project.
The restructured JV will also provide Elk with significant cost savings including the securing of a source of CO2 on advantageous commercial terms from Denbury.
Senior loan facility
A mandate was recently signed with the credit arm of a premier global asset management firm with experience in EOR projects.
The terms of the mandate provide for senior secured loan facilities of US$55 million for direct Grieve Project development. It also provides for additional funding to cover hedging and other associated transaction costs.
The mandate is subject to customary terms, conditions and approvals expected to be received within two weeks.
Completion of the restructure documentation remains the core catalyst for Elk but finalisation of the senior loan facility and completion of the rights issue will be integral to this.
Completion of the restructure documentation is expected to finalised by 30 June, 2016.
The senior loan facility is expected to be finalised within the next two weeks.
An update on the progress of the rights issue is expected after the closing date of 21 June, 2016.
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