rough guide to griev

Gooday everyone. I have just started a post on Grieve that some of you may want to add to or comment on.


Rough as Guts Guide to Grieve

The oil field at Grieve in Wyoming was first discovered in 1954. 30 MBBL have been recovered since this discovery. This is only 35% of the estimated oil reserve. Elk acquired this field in 2005 and there has been low rate production of 20 BOPD.

At Grieve there are two main targets, the Upper Sands and the Muddy Field from which the historic oil was produced from.

Upper Sands

In 2006 independent reservoir engineers calculated a potential reservoir of 51.4 million barrels but drilling in 2007 was unsuccessful and testing has been inconclusive even though nearby fields produce from upper sands.

A new well location has been selected and is scheduled to be drilled in 2008.

Muddy Reservoir

There have been two studies at Grieve looking at CO2 recovery.

Enhanced Oil Recovery Institute.

It estimated that 23 million barrels of recoverable oil was possible from the Muddy reservoir using CO2 recovery. The report indicated that a production rate of 8,000 - 12,000 barrels of oil per day (BOPD) is achievable once the field is re-pressurised.
Re-pressurisation, as modeled, is expected to take at least 2 ¼ years.

Ryder-Scott

This engineering group looked in more detail than the EORI. They did a well by well appraisal in comparison to the EORI study that had a whole of field approach.
Reserves at Grieve changed to 18.6 million barrels at 3P.

1P expected when full scale CO2 flooding has been implemented and production responses received.

So why 1P and not 2P or 3P

It really comes back to the present US legislation which is 30 years old and requires a flow test to the surface to be the only “conclusive formation test”. Since a flow test cannot be done in this field, Ryder Scott had no choice but to make it 3P. There is much discussion in the US about the need for this. See: http://www.ryderscott.com/download/308nsltr.pdf


Net Present Value

One of the ways analysts try to find a value for a company that will be producing in the future is to use the Net Present Value. Don’t worry about the formula because Ryder Scott has done all the hard work for us. They calculated, using very conservative figures, that ELK’s NPV = $320 million. Therefore if Grieve was for sale now from the conservative Ryder Scott report the starting point would be $320 million. But of course the buyer wants to make money out of the deal so they wouldn’t want to pay anywhere near that price unless there was a guaranteed oil price rise.

If you divide $320 million by the number of shareholders we get a figure of $5.15 per share with the price of oil set at $85/barrel. But what if the price of oil is $130/barrel.”

From the table below you can see the effect of this oil price change on share price. Grieve is now worth $9.79 per share if the cost of recovery is $35/barrel.




If only things were this simple. Of course we don’t know what the price of oil will be during the production phase. The other minor problem is that ELK doesn’t have the cash to develop the project by itself. So what can ELK do?

It could make a large placement thus lowering the share price . Or it could have a joint venture with another company so that they come up with the cash.

What happens to the share price if the Joint Venture deal comes off with ELK saying you can have half the field if you pay for the production.




Depending on the price of oil the buyer may want to have more of ELK than 50% or want ELK to help pay for the cost of production. That’s because if they have to pay all the costs and get only half the production they may be paying $70 to get $85 worth of production.


The other risk of course is that they need a CO2 supply.