Status of existing oil contract hedges, page-16

Hi BS

I have posted all that I know from my conversation with Alex.

The table is from their latest presentations , so it is reflective of what the CFO has said because it is their numbers.


From the table you get yearly Aneth hedge volumes.

2018) 1.593 million barrels
2019) 1.567 " "
2020) 1.519 " "
2021) 1.50 " "

The hedging declines are about 1.3% , 3 % and 1.3% year on year which is probably a fair bit less than the field would decline if no capital was put in .

We should not forget that the only "real "' affect on the cash flow from the steep climb in the POO arises from the US$ 10 million deferred payment due to Resolute in November. Had the POO stayed below US$52.50 for the 12 month period post completion, ELK would not have been required to pay any of that cash. Any cash Elk pay out to the counter party to settle the hedge is paid from the increase Elk gets for selling the hedged oil on the market at the spot price, so the net effect is the same whether oil is at $62 or $120.

Some say that there is an opportunity cost because ELK's hedging means it misses out on the oil price rise, which is true if they already held Aneth as a asset and then decided to hedge. However, as mentioned previously, Elk would not have been able to buy Aneth with the finance it did without hedging. IMO the opportunity cost of NOT buying Aneth is significantly greater than the opportunity cost in not being able to fully participate in the oil price rally.

Taylor Collison did a interesting research piece on ELK in OCT 17 where they analysed the debt effects on cashflow and what a refinance might look like. It showed a funding "hole" of about $10 million on FY 2018 ( without the $10 million deferred payment) at WTI $50.

pages 4,6, and 8 are most relevant.

https://www.taylorcollison.com.au/wp-content/uploads/2017/05/ELK-Aneth-a-game-changer-301017.pdf

Cheers

Dan