ELK PETROLEUM
SEPTEMBER 2013
Singleton Unit from #16 well
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ELK PETROLEUM
september 2013
Highlights
GRIEVE ENHANCED oil RECOVERY
PROJECT RESPONDS WELL TO CO2
& WATER INJECTION
• Reservoir pressure is responding to CO2 and water injection
- pressure increase is tracking forecast
- expected to be up by over 600psi by YE2013
•E
fforts underway to accelerate pressurisation and first oil
production:
-C
O2 injection rate has been resumed at or above
prior 33 million cubic feet per day rate after the annual
3-week shut-in occurred in September.
- Water injection rate capability to be trebled to 20,000
to 25,000 barrels per day in November.
• Site preparation for the high voltage substation is complete
GRIEVE CRUDE EXPORT PIPELINE
• Steps to monetise of the pipeline:
- Denbury now exploring acquisition of an interest in
Elk’s oil pipeline
- A private equity firm and a midstream company
are also considering taking up an interest
- Sale to Natrona Pipeline Company for US$9
million on hold until alternatives tested
ASH CREEK
• Studies add potential in Lower Shannon
• Farm-out plan initiated; costs reduced
NEW ACQUISITION
• Elk has executed purchase and sale agreement to
acquire the Singleton oil field in Nebraska
- Material EOR potential
- Successful due diligence should lead to January
2014 acquisition
- New strategic focus area: D-J Basin near Denver
CORPORATE
• A successful capital raising from institutions and
sophisticated investors was achieved in late July with
the commitment of AUD$2 million
• Refocusing of forward plan well underway
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ELK PETROLEUM
september 2013
CEO’S COMMENTARY
Since taking over as CEO, I have led a review of all of the
Company’s projects and opportunities as well as its core
strengths. In the first quarter of Elk’s 2013-14 fiscal year,
the Company has taken a number of steps to reposition the
Company by refocusing its business plan to concentrate
its future activities on CO2-based EOR projects and to
improve its funding position to bridge the time period until
it receives material cash flow from its interest in the Grieve
EOR project.
Elk’s core strength is its ability to identify potential CO2based EOR projects and to bring together the diverse
pieces that get CO2-based EOR projects up and going.
This core strength is reflected in the Company’s success
in taking the Grieve oil field from a 10 BOPD nearabandonment operation to a US$100 million investment,
operated by the premier US operator for CO2-based EOR
projects. This first project has established Elk’s credibility
in this sector, provided Elk with development experience
by working closely with the Grieve operator, and with the
commencement of both CO2 and water injection, Elk will
soon realise a material and transforming cash flow. The
Company now plans to capitalize on these strengths to
replicate this success. The post-quarter agreement to
acquire the Singleton oil field in Nebraska is the first step in
this process.
As part of this repositioning, the Company has expanded
its review of CO2 sources and is exploring anthropogenic
sources as well as more natural sources such as the La
Barge field source that supplies the Grieve EOR project.
Elk is concentrating initially on the Denver-Julesburg
(or D-J) Basin that covers parts of Colorado, Nebraska
and Wyoming.
In regard to addressing the Company’s forward funding
needs; the Company is undertaking a number of efforts
to meet its financial needs until its share of Grieve cash
flow commences. These include cutting administrative
costs, holding discussions with the Grieve field operator,
Denbury Resources (Denbury), in regard to modifying
the financial arrangements between Denbury and Elk,
including Denbury acquiring an interest in Elk’s Grieve oil
export pipeline. In addition, the Company has initiated an
active program to farm-out or sell a major interest in the
Ash Creek oil field and related EOR project plans for this
field. Elk is also exploring a number of financing options
to provide any additional funds needed to advance the
Company’s revised plans.
I am excited about the early outcomes of our efforts to
reposition the Company’s forward plan. I look forward to
bringing you more positive news in coming reports.
Dr Scott Hornafius
Chief Executive Officer
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ELK PETROLEUM
september 2013
GRIEVE ENHANCED OIL RECOVERY (EOR) PROJECT
Injection of CO2 and water for the re-pressurisation of the
Grieve oilfield continued throughout the reporting period.
The reported volumes of CO2 and water injected to the
end of August 2013 were nearly 6 billion cubic feet of
CO2 and nearly 800,000 barrels of water. These volumes
equate to average daily injection rates of 33 million
standard cubic feet per day (MMSCFD) and approximately
8,000 barrels of water per day (BWPD).
A number of bottom hole pressure (BHP) surveys have
been conducted before and since injection commenced;
the results are shown in the following figure.
Grieve Reservoir Pressures
1400
1200
1000
Water Injection
800
CO2 Injection
600
Simulation
Grieve #20
400
Grieve #22
Grieve #11
200
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Jan
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Feb
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Mar
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Apr
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May
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The results indicate the increase in BHP to be in line with
the operator’s forecast (note: there was no change in BHP
throughout September due to the cessation of the supply
of CO2 to allow ExxonMobil to undertake routine annual
maintenance at their Shute Creek gas plant, the source of
CO2 to the Grieve EOR project). The trend indicates that
reservoir pressure should have increased by over 100%
or 600 psi in the 9 months to year-end 2013. This interim
outcome will be sensitive to how much CO2 and water is
injected over the remainder of this year.
The field operator has indicated that it is striving to
increase the CO2 injection rate in November. It also
expects to have installed a new and larger downhole
pump in the Grieve water source well by early November
and this pump will enable the water injection capability
to be trebled to a rate of up to 25,000 BWPD. Sustaining
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these injection rates should accelerate the re-pressuring
operation and hence the time for the reservoir pressure
to reach minimum miscible pressure (MMP) at which the
injected CO2 and oil become miscible and the reservoir
oil starts to move again leading to first oil production from
the project. While the operator has not revised its early
2015 outlook for first oil, the Company sees the potential
for acceleration of this timing depending upon the levels of
CO2 and electricity supplies available.
Concurrent with the field operations, site preparation
for the substation that will provide for the supply of high
voltage electrical power to the Grieve field is complete.
The route and location for the power poles to bring the
power 3 miles from the substation to the Grieve field have
also been established.
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ELK PETROLEUM
september 2013
GRIEVE CRUDE PIPELINE
A number of parties, including Denbury, have expressed
an interest in purchasing a partial or total ownership of
the Grieve pipeline. Given that one or more of these
discussions could provide a better solution for the
Company than the previously announced plan to sell the
pipeline to Natrona Pipeline LLC (NPL), the efforts by NPL
to raise funds through a private placement to US investors
has been temporarily suspended. In the case of Denbury,
Elk is exploring a wider re-arrangement of its current
funding agreement with Denbury.
Monetization of the pipeline in one form or another
remains a major part of the Company’s near-term funding
plans and a priority.
ASH CREEK OIL FIELD EOR PROJECT
Further core and fluid laboratory work and simulation
studies of the Ash Creek reservoir continue to indicate
that the field has significant potential as an an surfactantpolymer based EOR project. The simulation work also has
highlighted supplementary secondary recovery potential
in the lower Shannon formation, which was not effectively
swept by historical water flooding.
A farm out program has been initiated: a number of
regional producers have been approached and Elk plans
to present the farm out opportunity at various US oil
industry prospect shows that are occurring over the next
few months.
Trusler #15 – an Ash Creek re-development well
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ELK PETROLEUM
september 2013
NEW ACQUISITION
Elk has been pursuing the acquisition of an oil field in
Nebraska for some time following identification of this
area, as well as the wider D-J Basin, as holding significant
potential for EOR projects. Nebraska also has favourable
tax and other business terms that encourage development.
Significant efforts were undertaken in the quarter to
complete negotiations and preliminary due diligence. A
purchase and sale agreement (PSA) with Coral Production
Corporation (Coral) for the Singleton Unit was executed
in early October. The Singleton Unit also provides the
advantage of upside potential in deeper unconventional
plays. In addition, Elk has established a good working
relationship with Coral, which holds a number of interests
in the area around the Singleton oil field. Due diligence
associated with the PSA is expected to be concluded no
later than 10 January 2014.
Historical oil production from the Singleton Unit reached
peak rates in the order of 4,000 barrels of oil per day
and resulted in primary and secondary oil recovery of
approximately 11 million barrels. Production came from two
J-sands, which are of excellent quality and which occur at
a depth of about 5,600 feet. These latter factors make the
two J sands an attractive EOR opportunity. The application
of tertiary EOR recovery technology to the Unit is expected
to result additional oil recovery in the order of 2-4 million
barrels of a sweet 37 degree API gravity crude.
The Unit has 18 wells currently available for re-entry out of
approximately 52 J wells historically drilled to exploit the
field. The Unit covers 2,386 acres. The acquisition also
includes production facilities that can be re-commissioned
to support near term production while the engineering and
development of an EOR project is undertaken.
The Singleton Unit is located in the southwest region of
the Nebraska Panhandle in the oil prone D-J Basin, which
straddles sections of Colorado, Nebraska and Wyoming.
Singleton Unit from #16 well
Denbury-Julesburg (D-J) Basin
Singleton Unit Facilities
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ELK PETROLEUM
september 2013
NEW ACQUISITION
(cont.)
The high quality in terms of permeability and porosity of the two J sands can be seen in the following thin section of a
core taken from these sands. The light blue areas indicate an average pore space of approximately 20%-25% in the
sandstone; the resulting permeability is in the range of 200 to 800 millidarcies, which should provide for a very efficient
tertiary EOR recovery project.
The accompanying log shows a typical section of the sands as they occurred at existing Singleton wells and the log again
highlights the quality and EOR suitability of J-1 and J-2 sands.
Petrographic view of a thin section of Singleton core
Typical Singleton Log
Apart from the upside EOR potential of the J sands of the Singleton Unit, Chama Oil & Minerals (in a JV with Devon
Energy) recently completed two wells (a vertical well and a horizontal well) to Permian and Pennsylvanian targets
immediately to the south of the Singleton Unit. The results of both wells are currently held as confidential information
suggesting possible upside potential for these deeper formations as they occur within the Singleton Unit boundary.
Future site for Grieve processing and storage facilities
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ELK PETROLEUM
september 2013
CORPORATE
Dr. Neale Taylor, the Company’s Chairman, who moved to the USA in a temporary executive position in January 2012,
returned to Australia in late October and will complete his current executive obligations from Australia before resuming his
role as non-executive chairman of Elk Petroleum Limited from 1 January 2014, subject to his re-election at the 2013 AGM.
CAPITAL RAISING
As announced in Elk’s June Quarterly ASX Report, $2 million was raised in the reporting period with the placement of
12,500,000 fully paid shares at an issue price of $0.16 per share to sophisticated investors and institutional clients of
D.J. Carmichael. Every two shares allotted in the placement will receive one free unlisted option with an expiry date of 1
February 2015 and an exercise price of $0.25.
PRODUCTION
Total gross production during the September 2013 Quarter was 931 barrels from Ash Creek and approximately 12 per
cent lower than the June 2013 Quarter. The reduction in production was the result of the loss of one well in the field
for approximately two months of the reporting period due to a downhole pump problem. The well was placed back in
production in late August.
FINANCIAL POSITION
Elk’s closing cash position as at 30 September 2013 was AU$1.874 million. Expenditure of AU$1.079 million during the
September 2013 quarter covered operations at Ash Creek, new project studies and overheads.
The average price received for Ash Creek oil for the Quarter was US$96.77 per barrel which was a 13.5 per cent increase
over the previous quarter. The average exchange rate for the period was 0.9152 USD per AUD.
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ELK PETROLEUM
september 2013
For further information please contact:
Dr. Scott Hornafius
Chief Executive Officer
+1 307 265 3326
info@elkpet.com
www.elkpet.com
Elk Petroleum Limited is an Australian Securities Exchange-listed oil and gas production, development and exploration company with assets located in the
Rocky Mountains, USA. Elk’s strategy is to acquire and re-develop mature oil fields in the USA using both conventional and new extraction techniques.
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