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buddy134

23,467 Posts.

110

24/01/15

08:18

Post #: 14634841
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Originally posted by CSGguy ↑

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.

Expand

For anyone who is interested, herewith is the Auditor's opinion included in their last Annual Report:

""Opinion

In our opinion:
(a) the financial report of Elk Petroleum Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

Emphasis of matter

Without modifying our conclusion, we draw attention to Note 1 in the financial report, which indicates that the ability of the consolidated entity to continue as a going concern is dependent upon the future successful development of its Grieve oil project, either through a corporate transaction, raising capital or the sale of assets.

These conditions, along with other matters as set out in Note 1, indicate the existence of a material uncertainty that may cast significant doubt about the consolidated entity’s ability to continue as a going concern and therefore, the consolidated entity may be unable to realise its assets and discharge its liabilities in the normal course of business.""

End of quotation.

Now, take full notice of what is written in the bottom paragraph of that Auditor's Statement/Opinion, and where/how he qualifies it..

But...here we are. We are the knights with the white armour on our steeds, to get them out of the quagmire. Or so we hope....

Cheers and good luck. I think that, IMHO if we are to go ahead with this Takeover/Merger, we will need all the luck we can get.
Last edited by buddy134: 24/01/15

ELK Price at posting: 3.0¢ Sentiment: None Disclosure: Not Held

MEL Price at posting: 3.4¢ Sentiment: None Disclosure: Held
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