GM takeouts

GRIEVE

The primary reason for the apparent delay in oil production is not  because of a problem with the field but the method Denbury have employed for field start up. There was a differing view on how to start up the field as compared to the initial process. Elk wanted the wells  to be commissioned laterally across the field to capture some up the updip ones early, whereas Denbury wanted to follow the path they took in starting up their Bell Creek CO2 EOR field , which is also a Muddy Sandstone formation oil reservoir. This meant first working on the wells down dip,  in or closer to the water flood zone which would always have resulted in primarily water and CO2 production. The work involved   cleaning out sand from the wellbores, testing water injection and production,  CO2 injection and production along with oil production. The reasoning behind Dendury 's thinking was as the field has been over pressurised, they were concerned they would flush oil away from the wells as they were configuring them. Now as this has been shown not to be the case, they are working on establishing consistent oil production which has not yet been achieved. However, oil is being produced now and is flowing into the storage tanks ( there was no oil production in April ) but ELK won't report a flow rate until a consistent flow occurs.

MADDEN

For @robynjackson , I can confirm that you are correct in your assertion regarding the 100% NPI associated with the Series B preferential equity that was put in place to help fund the Aneth purchase.  As RJ has stipulated,  this means that any funds/profit left from Madden production after expenses including Madden debt amortisation goes to the Series B equity holders. Brad said that replacing the series A & B preferential equity is probably the highest priority of the upcoming refinance.... which will be done by corporate debt funding as part of the complete package.. there will still however be a residual 25% NPI left over to those B holders once  they are paid out... To be absolutely clear, the prefs will not be refinanced with equity, so there will not be any shareholder dilution here and in all honesty, the A&B series could be considered as very expensive debt carrying a dividend yield of 15%, so replacing them with corporate debt with a significantly lower interest rate should be considered as highly desirable.

Regarding growth opportunities at Madden, Brad reiterated that ELK are very interested in beefing up their equity in the Madden shallows... the gas bearing formations  run basically from 5000 feet -20000 feet. ConocoPhillips have no interest/ desire  in further developing these formations which hold wet, sweet gas and have a separate 90 million CFPD processing plant and pipelines which is/ are only 50% utilised. ConocoPhillips  have  23.5 % equity in the shallow formations ( as compared to 46% in the Madden Deeps) and have not paid any attention to the 90 milllion BOE behind pipe resource. Since they took over operator-ship when took over Burington, not one well into the shallow gas has been drilled and Brad said if Conoco are not interested , they should let someone else have a go.... free equity transfer of Conoco's 23.5% to Elk is what Brad is after... good luck I reckon.

Regarding further acquisitions, due to the development pipeline at Aneth over the next few years, any new deals will have to clear the hurdle of 100% return that they are looking at current  Aneth projects.

HEDGING

They are looking at rebasing the  Aneth hedges when and if the opportunity arises. As mentioned before, Aneth spot price crude receives ~ US$5  discount to WTI, however, Grieve will receive a small premium to WTI

ANETH

Significant progress on the Phase I redevelopment has occurred. The target was to have 8 Mc Elmo well deepend by December with a budget to match. They are however 1 month ahead of schedule having batch drilled 4 wells already, and are currently working on their 5th well. The first 4 still need to be completed and brought online but the main takeout of the operation so far is they are coming in significantly under budget and ahead of schedule, which leaves room to drill some more in the current program if that becomes desirable.

The significance of the successful trial of the  monobore well repair on the E-313 well cannot be understated. This was an inactive well which Resolute had deemed marginally economic to repair , however ELK's newly acquired  team wanted to try the Monobore technique which had never been used, or even approved to be used in the State of Utah.  ELK's deliberations with the Bureau of land Management, (BLM), the Navajo Nation Environmental Protection Agency (NNEPA) and their JV partner meant that approval was given to repair the well. ELK had 25 officials from the various agencies onsite to observe as the well was tested at 4000 PSI as opposed to 1000 PSI, proving an overwhelming success. This means that ELK will be able to rehabilitate up to 80 such wells with a permanent fix, at a significant cost saving to the temporary, band aid  expensive fix Resolute  would have employed, if at all.  The LOE for this well is around US1.60 and replicating this well will be a major driver in production increase at a significantly lower cost of production.

There should be an announcement in the next week or two giving details on the well deepening activities.

REFINANCING

Brag spent half of June in the USA working on the refinance... there is interest and funds are available in the USA for refinance, the appointment of RBC Capital as advisor  is seen as a major positive and facilitator by the financial institutions. Someone asked the obligatory dividend question, however, unlike the AGM where the dividend word was bandied about freely, now, net debt reduction and balance sheet repair are the main short term financial goals.

A listing in the USA is a longer term goal but ELK want a rerate in Australia before any move down that path.

That's about it.

Thanks for listening.

Cheers

Dan