The highlights for the July-September quarter are as follows:
• Sand Draw South
In August, Elk received two expressions of interest to acquire Elk’s 100% working interest (WI) in Sand Draw South (SDS). Firm offers were received in early October. A cash offer of US$5.5 million was accepted subsequently after the Board came to the view that this offer represented a very attractive outcome for shareholders. The sale should be settled before the end of October; the effective date for the sale is 1 October.
• Ash Creek
An extended production test of the Trusler #1 well was concluded in August with encouraging oil cuts varying between 14%-16%; the tests indicate that the well could be produced at rates of 400-500 barrels of fluid per day (BFPD). The Trusler #1 well has been completed with a pump capable of handling rates at these levels. Pumped production should commence in November after surface facilities are installed and commissioned.
A workover of Trusler #8, which was initially designed to convert this well to a water disposal/injection well, commenced in September. Testing of the Lower Shannon formation achieved oil cuts of approximately 10%; this result will be further assessed by an extended production test of these zones. The extended test is expected to commence when production facilities are in place to receive oil from Trusler #1. Trusler #8 will be retained as an oil production well for an indefinite period depending upon the results of the extended production test.
Trusler #9 will now be re-entered and completed as the water disposal/injection well after necessary approvals are obtained. Until this injection well is available, produced water will be trucked to a third party disposal well off site.
• Grieve
Activities during the quarter focused on gaining financial support for an ASP flood. These activities continue and variations have been considered to reduce initial capital requirements by starting with a smaller initial stage of development. Other options for development of the large resource potential at Grieve Field are being considered.
• Oil Production
Production and sales for the quarter were down because of down hole pump problems in July and August at Sand Draw South resulting in 11% lower US$ revenue relative to the previous quarter.
The sale of Elk’s Sand Draw South asset means that oil production and revenue for the October-December quarter will be down considerably until Ash Creek production builds up to expected levels; Ash Creek production should have an impact on total production in the second half of the quarter.
The sale of Sand Draw South also opens the opportunity for Elk to reconsider its forward plan and strategy. The Company will conduct such a review before year end 2010, it will consider options for accelerated development at Ash Creek, Grieve development options and funding, and the pursuit of new opportunities with near term cash flow potential. The Company will also consider its organisational needs to pursue any changes in priorities and focus; a number of Board changes were reported in an ASX announcement on 21 October.
The results of this overall review will be reported to shareholders before year end 2010; a status report will be presented at the Company’s AGM in late November.
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