Part 2Cash Movements and NPVThe JV business is cash intensive,...

Part 2
Cash Movements and NPV

The JV business is cash intensive, from years of up-front operating costs and not from capital costs. The $62.9m is a substantial sum and will fund operations until first oil in say 18 months (as Elk has intimated, without linking $'s to it). That’s an incomplete picture. Deeper pockets are needed to carry Elk through to the first breakeven cashflow year, likely in yr 4 or 5. An undisclosed part of Elk's plan, is how they will fund the 2.5 or so years of ramp-up cost after 1st oil. The date on which the entire project becomes cumulatively net cashflow positive is perhaps year 7 imo.

Approx proof. Ryder Scott discounts $234m of future cash surpluses at 10% for an NPV of $95m. The means their weighted average cash surplus takes an average of 8.5 years to generate. Half of their NPV is generated b4 8.5 years, and half later. The spread and profile will be something like this. Big outflow in the first 4 years are recovered by big inflows in years 5 to 8.5 - the net effect generates half the NPV. The other half is generated over the long earnings tail (approx 20 additional years, probably most in the following 6).

The Ryder NPV conservatively discounts at 10%. On the other hand, it excludes costs from the headline NPV figure – admin, interest, tx. That doesn't make these significant costs go away, and the actual NPV will be lower. And you can't simply buy into the cashflow of the project. You have to buy into Elk and factor in its overhead cost for a lengthy period of time.

The JV has some capital costs ($10m for well, workover and piping), but most costs will be operational expenses. The remaining $53m will primarily pay Denbury's ongoing monthly CO2 supply & facility lease invoices. Unlike Elk, Denbury will recycle cash in and out of the JV. It will deposit funding, primarily extracting it again via the JV payment of its own invoices.