Has Elk Petroleum found the good oil?
Elk Petroleum Ltd (ELK) is one of those somewhat unique Australian companies, carrying out oil and gas activities in the USA that will be generating oil for local consumption within the next 12 to 18 months (and is not a major corporation with their attendant huge cost structures).
Its current share price is around 7 cents per share on the ASX, with a market capitalisation of around A$59 million.
ELK has been exploring and working at evolving a CO2 injection project in Wyoming for some years, which has recently matured.
Following a protracted legal issue, Elk has acquired interests in oil fields in Wyoming that previously generated substantial oil recoveries and had been on low production for some time.
Enhanced Oil Recovery Technology
As is typical of many such fields, the majority of the oil within the reservoirs had not been extracted. Elk is focused on an Enhanced Oil Recovery (EOR) Technology that is intended to acquire much of that remaining oil using waste CO2 gases from nearby fields.
In simple terms, the EOR technology involves ELK injecting CO2 gas at predetermined locations under pressure over an extended period of months.
Over this time, the gas frees up the oil from the fissures and the reservoir rocks, and progressively pushes the oil in place in the given reservoirs (towards the locations of extraction wells already in position to collect and recover the oil).
The beauty of the EOR is that it recovers oil that otherwise would not be recoverable, at a dramatically reduced capital cost. That’s because new wells are generally not required, and the CO2 gas is being re-injected into subterranean reservoirs similar to those from which they originally were extracted.
Hence, the CO2 is a cheap form of proppant that is no longer a real problem – now being dealt with safely and effectively with no exposure to leakage to the atmosphere. In effect, this is a green friendly oil and gas company.
ELK has recently completed a US$58 million senior debt financing and a A$31 million equity raising to fund the project through to production, so there is no expectation of the need to further fund the project (which is so regularly the bane of Australian exploration companies).
The lenders are US based, and they are very experienced in USA oil and gas funding, meaning their due diligence gives considerable confidence as to the future realities of the EOR project.
Some useful information and statistics from recent public documents:
- production expected in late 2017/early 2018;
- net production owned by Elk of 2.4 million to 3.1 million barrels of oil from 2018 to 2023;
- net cash flow averaging of between A$24 million to A$29 million from 2018 to 2023 dependent upon oil prices;
- conventional reserves of between 3.5 million to 5.3 million barrels of WTI style oil;
- as at November 2016, the project was determined at 75% complete structurally; and
- ELK owns their own oil pipeline that connects to the USA grid.
Please note: The company is presently negotiating the acquisition of additional leases. Click here to view the latest announcements to the ASX.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Published: Wednesday, January 11, 2017