New research, page-2

The good news from the link that Dan posted - to Pattersons Securities initiation of coverage on Elk - is that Pattersons is calling a target price of 15 cents.

The better news - also from that same research note - is that Pattersons is calling for further upside of 8 cents . . . to 23 cents per share . . . based on quote "de-risking of Grieve" plus a potential further increase of $5 dollars per barrel for WTI oil.

The best news of all - admittedly mainly from my own (perhaps optimistically biased) reading between the lines of the full research note - is that Pattersons seems to be taking a conservative position in several respects. This isn't one of those "Lord willing and the Creek don't rise" fingers-crossed sorts of optimistic spins to pump a share-price. The analysis seems solid, comprehensive and yet still cautious.

For example, Pattersons takes 15 cents per share off their (32 cents per share base case) valuation for the cost of debt-service. They list each of the onerous capital-repayment obligations, such as an interest rate of LIBOR plus 9 per cent in one case. But they don't examine the likely-to-be-much-cheaper financing options available to Elk once two things happen: oil begins to flow through the Grieve pipeline and pumping of CO2 into the Aneth field increases daily production.

Another example, Pattersons reports - correctly - that Elk gets 75 % of the revenue from the first million barrels of Grieve production and 65 % from the second million barrels. But their overall analysis appears to be based on the 49% equity in the Grieve field owned by Elk rather than the rights to call-it-70 % of the first 2 million barrels of production's revenue. Why that matters a lot is because production forecasts suggest that it will be 2022 before Elk/Denbury begin pumping the third million barrels. So the 70% revenue-share windfall should apply for all of calendar-years 2018 thru 2021, inclusive.

My point is not to criticise . . . or even examine . . . every line of Patterson's excellent research note - only to suggest that it appears credible to slightly conservative in posture.

I do have a personal bias that I have previously shared in my post of 21 November. Which is to say that I already expressed my view that Elk shares would trade above 20 cents by mid-February and above 25 cents by mid-August. So of course I like this Pattersons Securities research note.

But by all means read the full thing for yourself and draw your own conclusions.