ELK - Elk Petroleum

[Ken]

Hi,

Elk petroleum has come up. I read it in a magazine 12 months ago. Was at around 25 cents. It has seen close to $1 but some disappointing results have caused it to slip back down to 30 cent range. Management seems pretty positive above future operations.

Just wondering what anyones take is on this junior explorer.

I am not a shareholder and am currently doing some background work.

Has anyone done some research on it?

 

[Alien]

Has anyone done any research on ELK Petroleum?

Announcement today shows that production from their Sand Draw South Oil field has reached 340 BOPD. Market Cap is around $20 million and they have cash on hand of about $8 million.

Doing the maths 340 BOPD X $70AUD = $23800 or next quarter they should have production worth $2.14 million from this field in Oil alone.

I notice Directors have been buying up lately as well.

Seems grossly undervalued. Am i missing something here?

Announcement today:

Further Production Increases at Sand Draw South
HIGHLIGHTS
Ø The company is pleased to advise that it has successfully completed the
2006 workover programme at the Sand Draw South Oil Field.
Ø During the last week, test production at the field has reached 340
barrels of oil per day (BOPD) after completing the last well in the
workover programme.
Ø The Company now has 5 oil producing wells at Sand Draw South.
Ø Current oil production levels will contribute significantly to the
Company’s cash flow and profitability.
Ø Re-processing of the Sand Draw South 3-D seismic is underway.
Ø Further well workovers to be conducted during the Northern
Hemisphere Spring in 2007 are expected to add further to Sand Draw
South production.
Oil & Gas Production
The Company’s current daily gross production rates are approximately 360
BOPD. This comprises 20 BOPD from Grieve and 340 BOPD from Sand
Draw South. This is up from 80 BOPD prior to commencement of the
workover programme.
Sand Draw South Oil Field
The Company has significantly increased its daily production at Sand Draw
South by completing three new well workovers and enhancing production
from the two existing wells. Wells 6, 7 and 10 are producing from a
combination of the Tensleep and Phosphoria Formations. Wells 3 and 11
are producing solely from the Lower Phosphoria Formation and are
available for Tensleep production after this appraisal period.
Planning for the Spring workover program is underway with the
identification already of several other abandoned wells suitable for re-entry.
The aim of this program will be to increase production from the Tensleep
and Lower Phosphoria Formations as well as test the potential of the Upper
Phosphoria Formation in structurally attractive existing wells.
Re-processing of the purchased South Sand Draw 3-D seismic data is
scheduled to be completed by late February. The re-processing using latest
technology is expected to reveal further opportunities at Sand Draw South.
Rick Wood
Chief Executive Officer

 

[exgeo]

360 BOPD * (USD 55 BBL Oil price - USD 17 BBL production cost) * 365 days = 5.0M USD (this is 6.66M AUD using 75c exch. rate). Guesstimate 2M AUD in tax, leaves 4.66M AUD NPAT.

60.7m shares on issue, including escrowed.

This gives an EPS of 7.7cps (AUD). Of course this is on an annualised basis; for the earlier part of the FY they were producing less. Also they've been spending money on redeveloping the field, but this gives some idea of what to expect from steady-state operation at this production level. They seem to have more formations that have as yet been untapped (unrecognised as productive intervals by the previous owner). Also the company states that the field is more "compartmentalised" than previously recognised. This means that there is more faulting in the field than they thought, so the field may not have been drained as much as previously thought if the production wells were not optimally sited.

The production cost estimate of USD 17/BBL comes from a presentation of 21.3.06. Presumably when spread across more barrels of oil it might be lower, so this is conservative. At the time this estimate was made they were producing more like 80 BBL/day.

 

[Alien]

Thanks ExGeo for your valuation. You certainly know the Oil industry. (hence the name i guess

ELK are currently producing around 20 BOPD from their Grieve Oil field of which has 12.5million BO reserve.

Your forecast of At 7.7c earnings annualised plus the small Grieve production and additional upside with further exploration on Sand Draw South makes 34c look like a good investment. Good cash on hand and current production will self fund further exploration & deveolpment.

P/E 4.41 (.34/.077)

I am in at these levels. Good luck to all....

DYOR before investing as always...

 

[exgeo]

Well actually I don't know a lot about oil; during my career I was more of a hardrock geo (base metals, gold), so that's why I subscribe to Peter Strachan's newsletter. He genuinely is an oil guru. I just did simple arithmetic from publicly available figures, such as the oil price and number of days in a year! Here's Peter's site, I thoroughly recommend a sub. I made my dough back on NXS already having bought at 108c on his recommendation:

http://www.stockanalysis.com.au/

If I'd subscribed earlier then I wouldn't have followed the dozy director who bought at 90c!! Having said that, I've bought them now, and it seems like the downside is very limited, if any. Warren Buffets' 2 rules of investing:

Rule 1/ Never lose money

Rule 2/ Never forget rule number 1!

 

[Alien]

Up 8.96% today on increased volume. Closed at 36.5c.

Good to see somebody else seeing value.

Quarterly due out soon.

 

[Alien]

Further gains to 40c on good volume. Expect positive news from the next quarterly report due out in the next couple of days.

ELK going strong

 

[Alien]

Up 22% to 44.5c so far today. Plenty of buy support as well.

I am holding long term.

 

[exgeo]

Perhaps some of the instos that bought shares early last year have finally noticed that ELK have become reasonable value now. Especially as ELK are in production from the continental US, right next to the world's largest market and don't have to worry about wars, fickle governments or hurricanes. In fact one reason I bought them is that they'd actually benefit from a hurricane-induced oil price spike. There were no more Katrinas in 2006 though.

 

[silence]

Now above the resistance trendline established in August. Let's see where it heads to from here. I'm in, but closely watching.

 

[Ken]

Thought I'd bring this one up again.

Very interesting that citigroup has become a substantial holder.

This is an oiler in production and a fair way of peak production.

Looks very undervalued compared to its peers.

 

[Ken]

Just doing some research on this.

Currently producing 244 BOPD from 4 wells.

-expects to be back at 340 bopd after pump change on 5th well.
-plan to workover additional abandoned wells (april/may) - expected to add 100 BOPD
- plan to undertake a new infill well into untapped section of reservioirs (july.August) - average historical SDS intial production rate was 235 BOPD - expects to add 160 BOPD.

Target production is 600 BOPD from SDS by 2007 USD winter.

GRIEVE EOR -
Grieve Muddy Reservoir Original Oil in Place 85 million barrels.
50 % percent recover factor will ultimatley produce 42.5 Million barrels.
recovery is quick and dramatic in extent.
there are wells in the field ideally positioned for injection and production.

POTENTIAL MODEL ECONOMICS

ASSUMPTIONS
LIFE OF PROJECT 20 YEARS
START OF CO2 INJECTION Q3 2007
START OF PRODUCTION Q1 2008
PEAK PRODUCTION RATE 4,000 BOPD
CRUDE PRICE REVEIVED $US 45
CAPITAL REQUIRED OVER PROJECT LIFE 28 MILLION
CO2 EXPENSE COSTS AND OPEX $18 US BBL

NPV @ 10 PERCENTS OF 100 % OF PROJECT aud $155 mm

 

[Ken]

Some big sells today.

I watched it most of the day. and someone wants to offload ELK.

Dont know why. Whatever it is they want out.


Several orders poppped up for a buy @ 26 cents, and they were filled straight away. Theres a sell order sitting for 350 000 shares at 27 cents. whi i think will cap the stock.

I believe a ceasing in substantial holdings will be on the cards soon.

I believe its the same people who sold it down the other day.

Worth watching.

ELK does need some positive news however.

For those holding long, we are approaching a buy price.

But it doesn't look good at the moment.

 

[ta2693]

Some big sells today.

I watched it most of the day. and someone wants to offload ELK.

Dont know why. Whatever it is they want out.


Several orders poppped up for a buy @ 26 cents, and they were filled straight away. Theres a sell order sitting for 350 000 shares at 27 cents. whi i think will cap the stock.

I believe a ceasing in substantial holdings will be on the cards soon.

I believe its the same people who sold it down the other day.

Worth watching.

ELK does need some positive news however.

For those holding long, we are approaching a buy price.

But it doesn't look good at the moment.

I think the seller is more likely from index fund. The energy sector is very weak today. Index fund know nothing about inside information. I am willing to buy some if it keeps on falling tomorrow.

 

[Ken]

I disagree, the stock has dropped 30% in 1 month after looking like it was ready to run again.

30% is a lot to wipe off a stock considering it had a solid buid up from 22 cents in december.

Volume has also picked up considerably after an extended period of low trading days. which went on for the most of march.

The last time we saw 1 million shares traded in a day before the start of this month (I think may 2) the share price went to $1.25.

Citigroups position in ELK could be something to watch closely.

Whether to buy, hold or sell, you be the judge.

 

[Ken]

ELK definitley hit the SIN bin.

Being dumped really hard.

Big volume selling.

The question is why?

Ceasing of substantial holder very close. How much does this person have to get rid of????

 

[exgeo]

In the next set of accounts it can be anticipated that the production increase to around 300 BBL/day will start to show up (average prod'n last year was 50 BBL/day). ELK state in their announcement of 28/2/07 that they are receiving AUD $42.57 BBL.

If you are a believer in the stock then the fact that some idiot is dumping them ought to be the perfect time to load up on some more. It seems to me that there's little to go wrong with this stock (hopefully these are not famous last words!), providing they can keep ratcheting up production. They are not dependent on some wildcat well coming up a gusher for example.

 

[Ken]

The one thing i have learnt from past experiences is that if you follow the crowd you get burnt.

When people were selling bhp at 24 i was buying.
When people were selling tls 3.50 i was buying
When people were selling oxr 2.6o i was buying
When people were selling coe at 40 cents i was buying.

When people were buying BLT and I jumped on for the ride I got caught out
Enough to make re think the way I operate.

With speculative stocks such as ELK I am a fan of there opertations. A report i read indicates to me that at some point in time success will be had.

I have watched the stock a few days now. And the sellers have dominated. The buys on this have been tentative at best. nothing of any authority. The stock bounced from 25 cents to 30 cents, but since then there has been more selling. We have had some 1 million share days of selling.

I had a think about this. And came up with END of year Tax write offs. There have been some big losses on ELK. So my theory is tax purposes is the reason for the increased selling volume. this is just the way I am looking at the stock now.

I may be wrong but thats my theory. The fundamentals of this company are not the worst. There are companies out there that you would say, dont compare to ELK in terms of cash flow and exploration potential.... ELK to be 26 cents.... not so great... out of favour etc.

But if the aim is too find value before the train leaves the stations then ELK is the kind of stock I am looking at. The opportunity we have is there to purchase at low levels.

its Out of favour, turn around story would be needed.

Depending on the time frame for investors, ELK may not be suitable.

To me something doesnt add up. The report released looks positive. The potential is there, and it appears they are not far away from being cash flow positive.

- I find it strange that citigroup becomes a substantial holder.

- I find it strange that the price has dropped 30%

ELK may not be appealing to investors in a current copper/uranium/ nickell bull market.. oil is out of favour to some extent, the spec money is going elsewhere.

But purely as a case study the past 12 months for ELK have been extraordinary.

A low of 22 cents, a high of $1.20. a capital raising at 65 cents. There would be instos that have lost millions of dollars.


Its only a stock but it has me perplexed how ELK is being traded at the moment.

In 12 months time i will revisit the ELK thread just to see where its at.

Just something that doesn;t add up i am still learning a lot about stocks and the way they operate. I have never picked a multibagger and my goal is to go through ELK with toothbrush and understand the business so i can get ahead of the sheep that may follow the crowd when ELK's time comes, if it does at all.

I will attempt to make my research thorough and easy to read.

Just a project.

Go blue boys

 

[Ken]

ELK petroleum for next 6- 12 months

Sand Draw South Field -

Currently production is at 340 barrels per day. this is significant cash flow to the company of $15,000 to $17,000 per day. and yearly equates to over $4 million in cash flow per year. The sale per barrel fluctuates in the winter and summer months around $50 Aus per barrel.

The increase in production to 340 bopd, from recompleted old wells at sand draw south field, more than met objectives that were set out where 5 wells were completed inside of 4. Theres additonal potential in respect to old wells that are planned to be looked at.

During the winter months ELK will be concentrating on gearing up its operations to prepare for CO2 flooding of its Grieve oil field, where they have estimated a resource of 12.5 million barrels of oil.

ELK will be seeking CO2 and a partnership for this part of there operation.

Now according to my calculations.... Spring has Arrived in the Northern Hemisphere.

The announcements that we should expect are,

- Elk PETROLEUM sources carbon Dioxide
- ELl PETROLEUM SIGNS Farm-out Agreement
- ELK PEtROLEUM begins CO2 FLOODING
- ELK PETROLEUM DRILLS More wells at Sand Draw South field

If I am missing anything let me know. all this info came from the director via this link

http://www.brr.com.au/event/ELK/1693/18027

So it would seem its a better time to be buying than selling if you believe they succeed.

12.5 million barrels equates to of $625 million dollars worth of oil.

There are 60,710,503 shares on offer plus another 16 million to be released from escrow in June.

Market cap it $15 million any gurus can help me out to what its worth per share.

 

[Ken]

Just did some research into other junior developers.

MAE is a company that is looking to produce $20-$30 thousand worth of gas per day. it is trading at 69 cents. and that has a market cap of $170 million, compared to ELK which has a market cap of under $15 million....

So in effect ELK is producing, revenue at around $4 million dollars a year.

MAE is not producing at all, but plans to and revenue is set to be $4 million +.

MAE has a 11 times the market cap of ELK, so you would say that either ELK is under valued, or MAE is overvalued. I know there is other plays for both companies, but simply put there seems to be a difference in the way the companies are being valued.

At present, it would seem ELK is significantly undervalued compared to MAE in my opinion.

Anyone else agree? or disagree?