Ann: Commsec Investor Update Presentation, page-14

Hi Cmon

Thanks for the input to the discussion .... As you are one of the best exponents of understanding the financial aspects of the O&G sector on HC, I am not going to argue with you , but to continue the discussion, I'll take your 2c and raise you 3c. Looks like I'm going to write that essay for barrel81 after all.

I totally agree with you point about profitability and capital expenditure etc . Highly profitable companies can be FCF -ve , but only for the short term because if their FCF was -ve over the long term they would have to continually finance that cash deficit with debt or issue more equity capital and that would eventually stuff up their profitability and financial metrics.

I regards to ELK , what attracts me to the company is that potentially unique feature the EOR business has as compared to other O&G companies in their use of capital to sustain the assets and the FCF these assets throw off to reinvest on new projects or pay dividends.

Firstly, ELK do not need an exploration budget, a significantly advantage ( highlighted by FAR ... despite the huge Senegal success the SP will be in the doldrums for years due to constant equity dilution up to production in 5 years time)

For ELK, one could argue that the purchase cost of acquiring end of life or depleted field could be deemed their exploration budget, but it should be be quite low, as usually often the current holders want to get rid of the asset because they are becoming uneconomic as conventional oil fields and to avoid the fast approaching abandonment costs.

Once the initial large capital is spent on redeveloping a field the sustaining cost of capital is very low, unlike conventional or unconventional O&G , where there can be significant development drilling to maintain production, in EOR there is almost no need to drill new wells to access the remaining oil, the major sustaining cost is the CO2 for injection. At then end of the fields life, even this remaining CO2 left behind is an asset because it can be reused for EOR in another field.

This is a highly and easily repeatable business model.

The Madden purchase is special, here ELK have a US $ 17.5 million asset, that at current gas prices will pay for itself in less than 2 years and continue to produce at a slow decline for the next 50 years. ... " you only get one Madden in a lifetime!" a quote from "Tex" Moncief Jr I believe.



I reckon that will do for now.

Happy Easter

Cheers

Dan