Elk 49% (Denbury Operator and 51%)
Considerable efforts during 2015 resulted in negotiations being completed and simultaneous agreements signed early in the 2016 financial year (August 5th 2016), closing both the Joint Venture restructure with Denbury, Elk moving from a 35% to a 49% interest and the associated implementation of senior debt financing. Benefit Street Partners have provided Elk with a US$58 million senior debt loan facility to be used in connection with the Grieve Project JV restructuring and project funding. The Grieve restructure delivered a 51% increase in Elk net 2P Reserves to 5.3 MMbbls during FY 2015-16.
To maintain project delivery schedules during negotiations on the development of the Grieve CO2 EOR Project, for first oil, Elk funded US$2m as part of its US$55m total commitment to the Grieve JV Project. Elk’s remaining contribution commitments will be made over the next 18 months. Subsequent progress payments will comprise both debt and equity contributions and will continue under a fixed price turnkey contract between Elk and Denbury, with a milestone payments process overseen and verified by an independent third party engineer. The remaining major engineering works to be completed on Grieve being the oil processing and CO2 recompression facilities works. First production from the Grieve enhanced oil recovery project is targeted for late 2017 early 2018.
The CO2 enhanced oil recovery redevelopment plan for the Grieve Project is based on restoring the field’s original pre-production reservoir pressure of approximately 3,000-3,100 PSI before commencing oil production. This eliminates the need to install artificial lift pumping (Beam Pumps or ‘Nodding Donkeys’) to produce oil to surface, thereby reducing production well capital and operating expenditure. Under the proposed development plan, all of the CO2 produced is recycled and injected back into the field to recover more of the remaining oil. Ultimately at the end of the Grieve field life the CO2 can be left in the fully depleted oil reservoirs or potentially reused on other CO2 EOR candidate fields in the region, as the transmission infrastructure will already be in place.
Injection of CO2 and water has been undertaken on the Grieve Field since mid-2015 and field repressurisation is on schedule. As a result, a total of approximately 40 BCF (April 2017) of CO2 has been injected and a milestone has been achieved in the field with field pressure increasing above minimum miscible pressure of 2256 PSI (minimum miscible pressure being the point when CO2 becomes miscible in oil) and downhole surveys in April 2017 indicated a downhole pressure of 2900 PSI. At minimum miscible pressure CO2 begins to dissolve into the oil in the reservoir causing the oil to swell and reducing its viscosity. As the pressure further increases through the continued injection of CO2 this enables the CO2 to displace the remaining oil from the rock pores in the reservoir, pushing it towards production wells in the field. Reaching minimum miscible pressure is a key milestone in any successful miscible CO2 enhanced oil recovery project. Based on the current repressurisation and CO2 injection plan, the Company believes that production from the Grieve Project is possible by late 2017. With Denbury supplying and covering the full cost of CO2 required to reach facility start-up and projected point of positive operating cash flow.