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Elk Petroleum confirms producer status in U.S. with final payment

Tuesday, March 21, 2017 18:00
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Elk Petroleum (ASX:ELK) has made a US$10 million payment which in turn closes the acquisition of a 14% interest in the Madden Gas Field, Madden Deep Unit Gas Field and Lost Cabin Gas Plant in Wyoming, U.S.

The acquisition of the interest in the producing assets is effective as of 1 January 2017 meaning that Elk is now a producer.

Under the recent final closing agreement, the parties agreed on a reduced acquisition price of US$17.5 million, down from US$20 million.

The acquisition is forecast to generate positive net operating cash flow of over US$7 million per annum to the company.

A final payment of US$5.5 million representing the balance of the US17.5 million acquisition price is payable by 15 July 2017.

Asset details

The Madden gas field is the 33rd largest gas field in the U.S. as ranked by Proved Reserves.

With the Madden Deep gas field acquisition, Elk has secured quality, long-life reserves that materially increase not only the quantity but the quality of the company’s reserves base.

The acquisition delivers 70.2 billion cubic feet of Proven 1P gas reserves and 1.2 million barrels of natural gas liquids of which 64.9 billion cubic feet of the gas reserves and all of the natural gas liquids are reserves classified by Netherland Sewell and Associates, Inc. as Proved Developed Producing.

The Madden gas field and Lost Cabin gas plant is the second largest supplier of CO2 into the Northern Rockies CO2 gas transmission and supply pipeline network.

The amount of currently available CO2 supply from the Lost Cabin gas plant is capable of supporting the development of additional CO2 EOR project of a similar size to Elk’s current Grieve project.

Analysis

This payment is a significant milestone in the deal process as it closes the acquisition and elevates Elk to producer status.

The 14% Madden interest delivers January 2017 production of 23.5 million cubic feet per day and Proven 1P gas reserves of circa 70 billion cubic feet.

The Madden acquisition delivers long-term, low decline rate profitable production with negligible forward capital requirements.

Because the majority of the reserves secured through the acquisition are classified as PDP under the Society of Petroleum Engineers Reserve Classification Guidelines, no additional capital investment is required to produce these identified hydrocarbon volumes.

Based on the revised acquisition price, Elk has acquired these 1P Reserves at a cost of US$0.25 per thousand cubic feet, which is equivalent to US$1.50 per barrel of oil equivalent.

In January 2017 Elk’s share of Madden production revenue was US$2.5 million and operator forecasts received by Elk show a Madden unit production life of 50 years.

Furthermore, the achieved Madden sales gas prices in FY2016 were at historic low and consensus forecasts over the coming two years are significant higher.

Elk shares are trading up 13% in 2017, currently priced at $0.075.

Story by ProactiveInvestors



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