elk is extremely undervalued, page-8

Part 3
CO2

Serious cash is involved in C02 purchases. The C02 is charged on a sliding scale, based on the NYMEX crude price. At US$100 the approx figures were:
Years 1 & 2 30 MMcf per day Cost $16m pa
Years 3to 10 50 MMcf per day Cost $25m pa
Total 10 Yrs 168 BCF Cost $232m

I suspect the costs per BCF are still roughly right. But on 9 Jan 2013, Denbury acquired 33% of the inground CO2 reserve processed through Exon's Shute Creek plant. As part of the deal they cancelled the original supply contract that Elk had negotiated. Denbury have made soothing noises that all will be fine. They now own 100% of the sourced Co2 for Grieve, 100% of the onsite processing business and 65% of the final purchaser. It would be a little tempting to tweek the pricing to generate slightly more profit for your 100% owned businesses and squeeze the partially owned end purchaser with slightly more cost. On say $232m, a 5% tweek is significant.

Points of Difference to Denbury

Denbury still expects to recover 12m barrels gross (not 18.6m), which they say is between 6.4 and 6.1m barrels net to them. Ryder Scot gives that scenario an NPV of $54m for Elk, less admin, interest and federal tx. If over 12m barrels is produced, Denbury transfers a 1.2% RI back to Elk.

Denbury has a hedging collar in place that limits the downside if oil prices drop. Elk doesn't and is fully exposed to movements either way.

Conclusion - a possible play on a cyclical low entry if it turns up. Poor transparency is a negative.


My advice (as with everything) is to tease away, question, verify - until you've confident that you've amassed a fair approximation of the truth. Perhaps these 3 posts have informed you more so than 2 years of selective info.

It seems that any proper investment in the CO2 EOR business is a lengthy hold for the very patient. The speculators destiny turns on the latest trading whim and I have no info on that.