Grieve Oil Field and Grieve Pipeline
Grieve Oil Field (Elk 49% and Denbury 51% Operator) and Grieve Pipeline (Elk 100%)
The construction and commissioning of the Grieve CO2 EOR Production Facilities and the commencement of oil production has been completed by our joint venture partner, Denbury Resources Inc. within scope and budget under a fixed price turnkey construction contract and production has commenced within project start-up deadlines. The Grieve CO2 EOR Project is owned by Elk with a 49% non-operated working interest and Denbury Resources with a 51% operated working interest. As previously outlined in the ASX releases of 21 December 2015 and 5 August 2016, Elk holds an effective 60% economic interest in the project.
The first two quarters of the financial year 2017-2018 were an extremely busy and productive period on the Grieve Field both above ground and in the subsurface. The piping, underground electrical and mechanical installation contractors mobilised at the site in mid-July to begin the plant and equipment hook-up process under the Fixed Price Turnkey EPC contract with Denbury. There were no schedule or execution delays associated with contractor and supply chain issues. In the subsurface the field achieved reservoir re-pressurisation. Bottom Hole Pressure surveys indicated that the Grieve Field has reached 3,189 psi - the precursor required to commence oil production start-up. The field development plan is targeting maintaining a field bottom hole pressure of 3,000 psi. During the first quarter of the 2018 financial year a new oil production well, Grieve-55 was successfully drilled and completed in the southernmost end of the field to optimise oil production from a poorly swept area of the field. In tandem a well work-over and recompletion programme of the remaining seven wells in place was initiated to bring them up to specification, with a second work-over rig being added in August 2018. This well work-over campaign was completed in the second quarter 2018, giving the joint venture optimum well production flexibility as the field is brought online and well clean-up flows undertaken. The field redevelopment cost is part of the fixed price turnkey project agreement between Denbury and Elk. the Grieve CO2 EOR Project includes 24 active wells, 10 oil production wells, 10 CO2 or water injection wells, three dual purpose wells, two injector, one production well and one water source well.
The offsite above ground fabrication activities were completed with final delivery of minor pipe works in October 2017. By the end of the second quarter on-site construction and installation of major process equipment was 100% complete. The mechanical works and buildings were finished early in the third quarter. The erection of insulated buildings around facilities made them weather-tight allowing instrument and electronics engineers to comfortably complete and commission their works early in February 2018. After a four-week commissioning phase, on 17 April 2018 Elk announced the start-up of operations at the Grieve CO2 EOR Production Facilities. The construction and commissioning of the Grieve CO2 EOR Production Facilities was completed by our joint venture partner Denbury Resources Inc. within scope and budget under a fixed price turnkey construction contract. Denbury has advised that the production operations at Grieve are in keeping with the field start-up operations it established for its Bell Creek CO2 EOR Field on the Wyoming-Montana border which is also a Muddy Sandstone Reservoir CO2 EOR project. The subsequent operations have focused on two key activities: (1) a systematic clean-up of all production and injection wells across the field starting with an initial focus on testing the down dip wells and field production flow lines before moving to up dip well locations; and (2) reinstatement of CO2 injection across the field. The production clean-up of wells has established that the field can produce fluid and gas at high rates. Production clean-up operations consisted principally of water, associated gas (CO2) and some oil. With a focus on production well clean-up across the field, stabilised oil production rates for the project had not been established for the project by the end of the final quarter. Following year-end Denbury is focused on establishing stabilised oil production rates and oil production has commenced with oil now being recovered from the Central Processing Plant production separators and transferred to the sales storage tanks for transfer to the Grieve Pipeline. Elk advised at each of the AGM's in November 2015, 2016 and 2017 that during start-up operations initial production is expected to be mainly water. The Company remains confident that the focus shifting from well clean-up operations to production activities will see oil production ramp up.
Elk Petroleum Ltd through its subsidiary Elk Grieve Oil Pipeline, LLC owns and operates 100% of the 32-mile-long, eight-inch diameter steel export oil pipeline that extends from Grieve CO2 EOR project to a receiving station at the Enbridge oil storage facility in Casper Wyoming, our point of sale. Denbury has entered into an oil transportation agreement with Elk to use the pipeline to transport its share of Grieve oil to Casper, for a charge of US$3/bbl (escalated) on 100% of production.
In the first quarter the pipeline integrity was confirmed with its passing of a hydrostatic pressure test. As part of the pipeline's corrosion protection programme Elk also completed a new pipe-to-soil survey to determine the level of cathodic protection over the pipeline. At the end of the first quarter the Grieve Pipeline refurbishment was deemed complete. During the September quarter fabrication was complete. During the September quarter fabrication was completed on the pig launcher, pig receiver and control skid assemblies for the pipeline. These were installed and connected along with automation and control calibrations at both ends of the 32-mile pipeline, the Grieve Field and Enbridge oil storage facility, at the end of the March quarter. Enbridge then performed the physical interconnection, hydro-testing and linking automation and controls into its own facilities in early April in preparation for first oil. After year-end the Grieve pipeline began receiving oil from the Grieve Oil Field. Upon completion of filling the Grieve Crude Oil Pipeline (10,950 barrels), all Grieve Field oil production will be shipped via our pipeline and oil sales will commence via Enbridge Inc's Express System Crude Oil Terminal and the Platte Crude Oil Pipeline facilities at Casper, Wyoming. Initial crude oil production will be sold to the Sinclair Crude Oil Refinery at Casper, Wyoming. Under the restructured jv agreements negotiated in 2016 with Denbury, Elk will receive 75% of the operating profit from the first million barrels and 65% from the second million barrels produced.