ELK (ASX) GM takeouts

Originally posted by robynjackson ↑

Thanks for the great update and information.

Bad points:

1. Hedges -

"They are looking at rebasing the Aneth hedges when and if the opportunity arises."

Can you further explain that? Does that mean that they are going to close the hedges, take the loss, and then implement new ones? I know that they had to hedge to get the finance, but that huge % of production cost millions both at Aneth and at Grieve.

Hedging to cover basic interest and debt repayments is smart, but after that you are just betting on the oil price.

2. Grieve -

The announcement put out by Elk on 18 April 2018 was titled:

"Grieve CO2 EOR Project oil production commences" and included the following statement:

"Initial oil sales are expected to be made by 1 May 2018"

I guess it is kind of hard to have any oil sales on 1 May if there was no oil produced in April. The announcement headline IMO is extremely misleading especially given that there was no oil produced according to your report. That should have been released to the market. IMO a big fail by the company.

3. Preferred stocks:

I wonder how much those securities are going to end up costing the company? The interest rate could well be over 100% a year given the terms and conditions!!

They gave away the baby with the bath water when they issued those. What a rotten deal for the company. The series B's are like an anchor around the company and will be forever.

4. Possible dilution/dilution

Still don't like the idea of any further equity sales by the company if refinance isn't available or if given as a sweetner for the refinance. Given the crap deal the company made with the Preferred stocks, this is the biggest turn off for me to investing any serious coin into the company.

Good points:

1. Oil price

This is both a good point and a bad point. It is good if the company can ever get oil production from Grieve going, but I still doubt the price that they are going to get is going to be a premium to WTI. Given the distance of the refinery and the monopoly position they have, I still have my doubts about that.

It is also good if they can squeeze out any extra production from their properties as that wouldn't be hedged.

Lastly, the POO has to remain high AFTER they make the contingency payments. IF WTI crashes then it means they paid up front and will again be in another losing situation.

2. Aneth development:

They need the oil bad in order to get cash into the company so it appears that ops there are good.

Expand

RJ

Brad didn't elaborate regarding the hedges as to the mechanics of any rebasing, however there is no need to action on Grieve because ELK has full exposure to the upside .

As to the price ELK will get for Grieve , I was surprised when he said they will get a small premium to WTI, but I see no reason for Brad to say that if this is not going to be the case.

From what I understand , Elk can redeem the referred stock at a 20 % premium to the issue price so they will need to pay $13 million extra to redeem the $65 million prefs.... basically 1.25 years interest in advance but worth it to get that s#@t paper off the books.

They way Brad was talking about the operations at Aneth, IMO, ELK are going to eke out some significant low cost incremental production in the short-medium term ... we shall have to wait and see.

Cheers

Dan

RJ Brad didn't elaborate regarding the hedges as to the...