Lets try and keep this discussion fact based, so no cr*p please.
Based on the information I have read in relation to co2 oil recovery I was surprised that the EORI figure was not higher than the 23mil barrels.......I assume that the 23mil figure is one the EORI are very comfortable with and they most likely expect a higher recovery but are not willing to put their b#lls on the line if it doesnt eventuate and besides 23mil barrels is a very significant number anyway.
What can we expect from Ryder Scott?......As investors the number that will be important for the shareprice is the one that has a 2p behind it, ( we will need a co2 contract), that is the number that the market will be willing to back with money......1p is likely only to be attributed once the field has ramped up production to a reasonable level.......Worth looking at the definition attributed to the different level of reserves.
Proven Reserves - defined as oil and gas "Reasonably Certain" to be producible using current technology at current prices, with current commercial terms and government consent, also known in the industry as 1P. Some industry specialists refer to this as P90, i.e., ideally having a 90% certainty of being produced.
Probable Reserves - defined as oil and gas "Reasonably Probable" of being produced using current or likely technology at current prices, with current commercial terms and government consent. Some Industry specialists refer to this as P50, i.e., ideally having a 50% certainty of being produced. This is also known in the industry as 2P or Proven plus probable.
Possible Reserves - i.e., "having a chance of being developed under favourable circumstances". Some Industry specialists refer to this as P10, i.e., ideally having a 10% certainty of being produced in the foreseeable future. This is also known in the industry as 3P or Proven plus probable plus possible.
Therefor if EORI were certain of producing 23mil barrels, surely if RS are using the same modelling program they will be at least 50% confident that the 23mil barrels can be recovered......of course they may be overly conservative and allow a lower figure.......they could also come to the conclusion that there is a 50% chance of recovering higher quantities..........
Positives= significant chance of success...low geopolitical risk...repeatable...co2 sequestration.....low developement cost...... Negatives......Time taken to ramp up production Co2 costs are large....... but so too are drilling rigs, production platforms pipelines and field developement costs that other companys have to navigate.....also Elk have lower royalty costs than many companys....... As for the time taken to ramp up production it is probably relative to the time taken to develop a new oilfield .
What shareprice are we likely to see?.......My guess is in the early stages a conservative value would be minimum $10 per 2p reserve which would value the company around the $4 per share if all 23mil B 2p. If Ryder were only willing to attribute 12mil B 2p we are still looking at a minimum of $120mil market cap or $2 a share........once production has ramped up a value of $30 a barrel would seem certain based on the current oil price.......Obviously a JV would see a significant reduction in Elks share of reserves however from a short term shareprice perspective I feel that confidence the market would gain from a major company backing the project and taking on the financial risks would be more than compensated for by the market attributing a much higher value per barrel.
Cheers
ELK Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
