read it and weep: elk 2012 annual report, page-10

Copperpot,

Your posts are misleading and contain false information. Simple as that. Elk will not be able to access any funds from the initial phase of the Grieve project until the second phase begins and only then when it is able to satisfy the contribution required ($34.3 million) for the second phase.

The Annual report states it clearly:

"SALES

The terms of the Grieve joint venture agreement with
Denbury require Elk’s share of revenue from the Grieve
oil production to be accrued against future expenditures.
Hence, Elk did not receive any cash revenue from Grieve
oil sales for 2011-2012."

It can’t be any simpler than that. More later.

Do you think Elk is the “hope and change” company?

Looking at the posts over the years people have been seeing value in Elk, but the only thing I see is dilution and less backing of oil per share.
In future I see the same thing happening and it is a guarantee that shareholders will see more dilution and less backing of oil per share. That is a fact.

A little history lesson:

In September 2007 Elk had 60 million shares outstanding. On 1 July 2010 Elk had 102 million shares outstanding. On 30 June 2012 it had 147 million shares outstanding. After the cap raising is completed it will have 167 million shares outstanding.

But wait there is more.

Assuming that the share price stays at 25 cents, over the near future you’ll see another 1.5 million shares issued from insider options and another 5 million for various ‘rights’ for insiders. So 6.5 million more shares and counting. We are now up to 173.5 million shares.


But as the TV commercials says, but wait there is even more!!!

If the ‘rights’ get approved for insiders in the upcoming meeting there will be another 1.4 million shares issued for them.

And it gets even more exciting!! There’s more!! If the shares manage to get to 35 cents, the options issued during the cap raising may get turned into shares as well…..add another 10 million shares there as well.

So let’s add it all up. Elk will have at least 175 million shares outstanding and maybe 185 million if the options get into the money.

The oil backing per share has basically fallen from 1/3 of a barrel per share in 2007 and at 30 June 2012 it had 1/20 of a barrel per share. After the recent cap raising it will be down to 1/25 of a barrel per share.Using the total number of shares at 185 million it will have 1/26 of a barrel per share.


The purpose of an oil company is to increase the oil backing per share outstanding and not decrease it.


Now let’s take it one step further and do some cash flow analysis. This is based on assumptions as the latest quarterly is not out yet and the cap raising isn’t complete.

The cap raising may gross $5 million of which the underwriter will probably get $250,000 to $300,000 or more. Running leftover from the cap raising is now $4.7 million.

Elk was probably out of “net cash” as of 30 September and we know that it had some bank debt ($600,000) as of the investor presentation and trade payables of about $1 million as of 30 June Annual Report date.

We don’t know how much of the one was used to fund the other. Let’s assume that the entire amount of the bank debt was used for trade payables so that the Elk ‘net cash’ is zero and a very conservative calculation. Bank debt of $600,000 needs to be paid from the cap raising. Running leftover from the cap raising is $4.1 million.


Given that Elk needs about $200,000 per month to run the company and first cash flow from Ash Creek is not until June next year, Elk will need at least $1.8 million from the cap raising set aside for that, the running leftover from the cap raising is $2.3 million.


We don’t know how much of the remaining Ash Creek operations remain to be funded out of that $2.3 million, but one would expect it to be substantial. $1 million at least if not more given the costs to date? We’ll leave it for now with a “question mark”.


As in any business the most dangerous thing to do is to plan your operations on expected events that revolve around future income dependent upon actions which are out of your control. With Elk the pipeline fits into this category. The company appears to be placing all its ‘eggs in one basket’ and is depending on funds from ‘monetizing’ the pipeline for continued and future expenditures which leads me to believe that the funds from the capital raising will not be sufficient to complete Ash Creek alone.


The pipeline has not been used for years. I doubt that it is A-1 condition and will need funds applied to it in order to bring it into operating condition. How much is a guess. The more needed the less the value of the pipeline. Those funds will have to come from the capital raising or the entity which may be involved in the purchase of some of the pipeline interests. The greater the funds required the less value accrues to Elk.


So where does that leave the company? Insider options will bring in $300,000 or so if the share price remains around 25 cents. Listed options might bring in $3.5 million if the shares are above 35 cents in September 2013……….


Ash Creek will start to provide some cash flow in June 2013, but not enough to fund the company’s expenditures for a while and that assumes the project comes online and without any problems.

Grieve cash flow will not be available to the company for years.


So where is the company going to get the funds it needs to operate? To ‘invest in other opportunities” ?


Now let’s talk about the real funding question.

And the second phase of Grieve? Again you have provided incorrect information and information that conflicts with the Elk announcements.

Specifically from the 9 May 2011 announcement and I quote:

“At Elk’s election, Denbury may fund Elk’s share of the next $34.3 million of field expenditure on a cost recovery basis – i.e. Denbury will be entitled to recover Elk’s share of these costs with accrued interest from Elk’s share of first oil revenue (Phase 2 Funding). Elk may or may not, at its discretion, elect to sole fund its share of Phase 2 Funding depending on circumstances prevailing at the time.

Funding requirements beyond Phase 2 Funding will be met by the joint venture parties on a working interest basis.”

So not only is the statement from the Elk Annual report correct, but funds from the “first oil revenue” are earmarked for the expenditures unless Elk comes up the funds some other way. Furthermore, Elk will have to pay accrued interest on the funds provided by Denbury.

So tell us all where that $34.3 million is going to come from? Thin air? And you can be sure that Denbury will not release one cent to Elk unless that $34.3 funding is ‘in the bank’.