Announcement of April 2008 - Co2 for Grieve AnnouncementOIL...

Announcement of April 2008 - Co2 for Grieve Announcement

OIL RESERVES DETERMINED AT 18.6 MMBLS FOR TERTIARY RECOVERY AT GRIEVE HIGHLIGHTS

? Ryder Scott has provided an independent reserve certification of 18.6 million barrels of ?Possible? (3P) reserves
for the proposed tertiary oil recovery program at the Grieve field in Wyoming.
? Ryder Scott has valued the tertiary oil recovery project at USD$305 million (unrisked NPV 10 base case).
? This study has relied upon a new detailed reservoir study conducted by Nitec LLC to conduct an economic
feasibility study of the proposed tertiary oil recovery program.
? In addition, the study provides a clear pathway for the future conversion of these reserves to the ?Proven?
category.

SUMMARY

Elk Petroleum commissioned Ryder Scott (Denver) to arrive at a reserve determination which also involved a detailed
evaluation of the economic potential of the proposed tertiary oil recovery program for the Grieve Field (Wyoming). This program will entail injecting carbon dioxide (CO2) into the Muddy Reservoir within the Grieve field to re-pressurise the reservoir and extract incremental oil. The Chairman of the Company, Dr Peter Power said ?We are very pleased with the outcome of these studies and the Ryder Scott reserves report. This report was a key requirement to progress negotiations for CO2 with our potential joint venture partners and the receipt of this report is a major step forward for this project. There are numerous enhanced oil recovery projects currently underway in the US and two independent studies have now confirmed our view of the exciting oil recovery potential at the Grieve field. This project is a win-win situation. We are recovering incremental oil in a cost
efficient manner and sequestering approximately 9.5 million tonnes of CO2 which would otherwise be vented into the atmosphere.?

RESERVOIR STUDIES

Ryder Scott requested that certain aspects of the study conducted by the Enhanced Oil Recovery Institute (EORI) at the University of Wyoming in 2007 be reviewed further to enable them to provide a reserve assessment and an opinion on the production potential of the Grieve Muddy reservoir from a carbon dioxide (CO2) flood. Nitec LLC (Denver), a specialised reservoir engineering consulting firm was engaged to develop an independent reservoir model of the Grieve Muddy reservoir. This study came to similar results to the EORI study of the proposed tertiary recovery program at Grieve. The history match conducted by Nitec was in greater detail than the EORI approach and was carried out well by well, compared with the field wide history match of the EORI study. Nitec evaluated a number of development options for the field in terms of CO2 quantities, location and types of injection and producing wells, the benefits of simultaneous water injection, etc.

The following table compares two forecast production results from the similar EORI and Nitec simulations:

Initial CO2 Injection Rate
EORI MMBbls Nitec MMBbls*
110 MMSCFD** 23.2 21.0 *
50 MMSCFD** 19.8 18.9

There was good agreement between the two models which were developed independently and used different approaches
to the forecasting simulation. The close correlation between the results has permitted a reasonable level of confidence by Ryder Scott to use the studies to arrive at its reserve determination. Ryder Scott indicated that elevation of the reserve classification to the ?Probable? (2P) category per the SPE Reserves Definitions would require a successful pilot. Ryder Scott then went on to observe that conducting a pilot on a depressured
reservoir is impractical and therefore reclassification to ?probable? (2P) by this route is also impractical. Ryder
Scott indicated an up-grade of the reserve classification to ?Proven? (1P) is expected when full-scale CO2 flooding has been implemented and production responses achieved.

ECONOMIC EVALUATION

The Ryder Scott report also included an extensive economic evaluation. This evaluation provided a base case valuation of the project of USD $305m (unrisked NPV 10). This valuation assumed an oil price of US $85 per barrel and no CO2 sequestration benefits or resale after use. Ryder Scott found the project to have very robust economics.

DEVELOPMENT PLANS

Elk has made considerable progress in negotiations with potential CO2 suppliers and is well advanced in discussions to acquire and transport the required CO2. There continues to be considerable political pressure within the State of Wyoming for CO2 currently vented, to be utilised in tertiary oil recovery projects.

REVISED RESERVE POSITION

The Company?s current certified reserve position is as follows:

Certification Previous Revised
1P 590,000 barrels 590,000 barrels
2P 920,000 barrels 920,000 barrels
3P 948,000 barrels 19,548,000 barrels

INDEPENDENT RESERVE ASSESSMENT

Reserves for tertiary oil recovery within the Muddy Reservoir at Grieve have been determined by Ryder Scott (Denver)and have been prepared in accordance with the current standards of the Society of Petroleum Engineers (SPE) Reserves Management System. Ryder Scott has consented to the release of this announcement.

What I like the most is:

The Ryder Scott report from April 2008 "included an extensive economic evaluation. This evaluation provided a base case valuation of the project of USD $305m (unrisked NPV 10). This valuation assumed an oil price of US $85 per barrel and no CO2 sequestration benefits or resale after use. Ryder Scott found the project to have very robust economics".

Take into account $95 per barrel and the sole funding of the first circa $30 million ($28.5 million plus pipleine cost of $1.2 million = $30 million) by Denbury as well as the royalty to ELK after the first 12 million barrels the tarrif Elk will charge for trasnporting the Crude and the project would have to have a NPV(10) of at least US$330 million. Multiply this by 35% and ELK's share is US$120 milion divided by 115 million shares and Grieve has a value of over $1 per share by itself........

Add to this the exclusivity Elk has in the Niobrara formation (oil shows detected similar to Bakken), Ash Creek and Hereford (Montana) and the share price could very realistically have a fair value of $1.30...... Add to this the potential of other small fields around the new Grieve pipeline and ELK is dirt cheap. The market will detect soon.