London, UK, 15 August 2017

Edison issues outlook on Elk Petroleum (ELK)

Elk Petroleum (ELK) is an ASX-listed oil and gas producer and developer with a focus on enhanced oil recovery (EOR) from mature fields. The company's current focus is on CO2 EOR projects in Wyoming, US, where it's first EOR development project, Grieve, is due on stream in late 2017/ early 2018. Grieve, combined with the recent acquisition of a c 14% interest in the Madden gas field is due to turn ELK into a producer and material CO2 resource owner. We visited both Grieve and Madden in July 2017, which helped highlight a number of opportunities management is actively engaged in targeting. These include resource upside at both Grieve and Madden, numerous high IRR infrastructure optimisation opportunities and CO2 EOR opportunities in the vicinity of ELK's operated assets. Our valuation of ELK reduces from A$0.11/share to A$0.09/share due to a reduction in Edison's long term oil price assumption from $80/bbl (2022) to 70$/bbl.

Our NAV-based valuation for ELK is split A$0.17/share for Grieve, A$0.06/share for Madden and a total NAV of A$0.09/share (NPV10) after deducting net debt and admin costs. Given ELK's US onshore focus, we make valuation comparisons to similarly located and sized US E&Ps. ELK compares favourably on a number of these metrics including EV/1P ($/boe) and EV/flowing barrel. Our ELK valuation is sensitive to numerous factors including resource recovery and timing of the Grieve development, Lost Cabin Gas Plant (LCGP) plant life/gas recovery, asset integrity and uptime. We note that ELK is not exposed to cost overruns at the Grieve development given its contractual arrangements with operator Denbury.

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