Doctor, there is a very good reason the MEL Board has adopted...

Doctor, there is a very good reason the MEL Board has adopted their current approach to the merger and that is they want to avoid at all costs any review of ELK's current operations. They do not want to disclose any modelling.

There is also no guarantee the Independent Expert's report ELK is obliged to complete will provide any additional information. Their remit is to look at MEL's assets to provide some comfort to the ELK shareholders and have no need to examine the economics of ELK's current operations other than to determine if MEL is able to fund the ongoing cash needs.

All the indications point to a very poor economic case for MEL shareholders: -

• The market is clearly not impressed, with MEL sinking to its lowest share price ever since the announcement. No one in the market sees enough positives in the merger to risk any money in MEL.
• ELK was floated in June 2005 solely on the basis of developing the Grieve oil field. Even now, almost 10 years later, the forecast for first oil from Grieve is still more than 2 years away (March 2017) and first cash flow due to ELK is more than 3 to 4 years away.
• The most recent independent technical analysis of the Grieve development, released to the market, was carried out by Nitec LLC in April 2008 and appears to be based solely on CO2 injection.
• CO2 and water injection commenced at Grieve in early 2013 under the Joint Venture with Denbury, but then was substantially changed in early 2014 to water injection alone. Even with these substantial changes, ELK has continued to use the numbers obtained from 2008 analysis.
• ELK has continually promised to release revised economics based on advice from the operator Denbury but has never done so. And, given the takeover, is now unlikely to release any additional information.
• Denbury, the operator of the Grieve field, in its releases to the U.S. market, are assigning total recoverable reserves from the Grieve field that are less than half that used by ELK.
• I have had a reasonable look at the economics of the Grieve field and, based on the recoverable reserves assigned by Denbury, I get an unrisked value of around $0.07 per ELK share even assuming high oil prices return relatively quickly.

So in summary, I see Grieve as a project that ELK has been promising for the last 10 years, offering a very low return after a further long wait and consuming an unquantified quantity of cash in the interim.

As for the much vaunted due diligence carried out by MEL, you have to be very suspicious of its quality given that MEL was prepared to hand over AUD2.5 million to a company, on the verge of administration, and not ensure existing shareholders who had made loans remained committed to supporting ELK. Instead MEL were prepared to provide AUD1.25 million to allow these few selected shareholders to walk away with their capital intact even after earning 12.5% on the loans.

So doctor, while all shareholders might believe that it is incumbent on the MEL Board to provide some information on the economics of the proposed merger, it appears the Board has no intention. And so we are left to draw our own conclusions.

I urge all shareholders concerned that they will not be shown any modelling of the returns from the merger write to the ASX urging them to use their discretion to insist on a shareholder vote. The modelling may show that the merger is worthwhile for MEL shareholders, but given the reluctance of the MEL Board to provide any details, the very strong suspicion must remain that the deal does not stack up for MEL holders.