Ann: Managing Director Address to EGM, page-2

Went to the EGM yesterday ....was outnumbered by the board, staff and 3-4 fundies so basically had personal presentation by Brad.

Despite the lack of numbers to basically a procedural meeting the guys were upbeat and excited about what is unfolding for ELK.

Some takeouts....

as per presentation Grieve is on track for year end startup, management had a full day progress meeting with Denbury last week . Pretty well all of the " kit " is fabricated and stored indoors, protected from the elements and ready for shipment and installation.

Boots on ground at end of May and Denbury are performing well and providing excellent lines of communication.

Grieve pipeline has excess capacity for third party transport with discussions ongoing.... there are some heavy oil producers interested to pipe their product... this is important they are required by state law to pay a higher tariff, more than double which would be a significant bonus to ELK if consummated.

CFO was in the US last week and took some shareholders who were in the US at the time to visit the Grieve site.


Madden just keeps on producing surprises, all good at this stage.


The Operator has just provided data to support the remaining gas reserve volume at 1.77 TCF, 65% of which is methane, which gives ELK a reserve figure of approximately 160 BCF ( 1.77 TCF x 0.65 x 0.14)..... significantly this is ALL only from the Deep Madison producing zone and excludes the shallower gas plus extra behind pipe resource. This data is being sent to Netherland Sewell to certify . Elk paid US 17.5 million to buy what Freeport said was a 70 BCF reserve or 25cents per MCF, but it looks like in the near future they will have certified reserves more than double that ( just from the deep zone) at a purchase cost of around 10 cents per MCF. Keep in mind that at current gas price ELK are making a profit close to US $ 1 per MCF

The shallow gas is currently producing 30 million CFGPD with no CO2 here. The shallow gas has its own dedicated production facility which is only 50% utilised ..... more work to be done here but with that sort of production rate some fairly material reserves will be booked at some stage IMO

ConocoPhillips are being exceptionally accommodating to ELK in terms of information, data flow, co-operation .... more than any other operator has to a junior JV partner in the ELK team's experience.... for example, the operator wants ELK to take the lead in driving forward the CO2 sales and utilisation... apparently , there are additional tax credits of approximately US $ 10 million that are not being captured and ELK are to move forward on correcting this.

At the latest JV meeting Conoco presented a capital works program that was to have a total cost pf approximately US $ 2 million that was going replace/ repair a valve/ pump to correct a bottleneck in part of the plant resulting in an increase in total field reserves of approximately 32 million BOE or 4.4 MMBOE net to ELK.

There will be a reduction in gas production for approximately 2 months late this quarter, early next quarter due to some maintenance after which the field should produce at a higher rate than the 25-26 MMCFGPD currently.

They are NOT looking to hedge the gas at this stage because EIA project Henry Hubb to average US $ 3.55 per MCF in 2017 and $3.73 in 2018.... if they were to hedge the would use zero cost collars to protect the downside and keep exposure to the upside.

ELK are definitely looking to increase their interest in Madden, they are working on this as well as " running their ruler " over 3 other potential deals.

Brad said Madden is a classic example of a seller ( Freeport) who had a asset they didn't understand, let alone show any interest in doing so, and couldn't wait to get rid of once the decision to sell was made, and ELK happened to be at the right place at the right time.... there apparently was another bidder ( a US private ) which would have won the bid but couldn't get their finance sorted.

lucky for us!

Cheers

Dan