Stumpy, I have tried to put together an analysis of the potential returns based on the Grieve development alone and I agree that on some assumptions the project could look attractive. For instance assuming the 18.6 MMBls recoverable claimed by ELK I can get a valuation of around $0.28 per ELK share.
But using the same assumptions I only get a valuation of around $0.07 using the 9.23 MMBbls recoverable that Denbury are currently reporting. Both of these estimates are unrisked.
The analysis is very heavily dependant on oil price assumptions from 2018 onwards and I don't think anyone has a handle on that. In my analysis I assumed that the oil price was back up close to the USD100 level in 2018.
The major problem though is that ELK does not receive any cash flow from the development until early 2019 under the 18.28MMBbls scenario or almost 2021 under the 9.23 MMBbls scenario. We currently only have an estimate of the required expenditure through 2015 and no idea of expenditure through 2016 up to first oil on 1st March 2017. Based on the wording of ELK's ASX releases it also appears that under the JV agreement ELK has little or no way of influencing expenditure or the progress on the project. This means that during the intervening period up to first cash flow (2019 to 2021) ELK cash demands are almost totally at the whim of Denbury.
MEL needs to offer a reasonable explanation about what we will be doing between now and first cash from Grieve other than sitting and watching the grass grow.
ELK Price at posting:
3.0¢ Sentiment: None Disclosure: Not Held
MEL Price at posting:
4.1¢ Sentiment: None Disclosure: Held
(20min delay)