Elk Petroleum Ltd (ASX:ELK) (OTCMKTS:EKPTF) ("Elk" or the "Company") is pleased to advise that it has executed a closing agreement with subsidiaries of Freeport-McMoRan Inc. (NYSE:FCX) ("FCX") in relation to the acquisition of FCX's ~14% interest in the Madden Gas Field, the Madden Deep Unit Gas Field and the Lost Cabin Gas Plant in Wyoming, USA, ("Madden") previously announced by Elk on 4 January 2017.

- Adjusted final acquisition price of US$17.5 million agreed with Freeport McMoRan

- Scheduled closing date 17 March 2017 (US CST), transaction effective date 1 January 2017

- US$15.5 million acquisition price balance payable in two tranches:
o US$10 million on closing
o US$5.5 million by 15 July 2017 (US CST)

- US$10 million convertible loan completed to fund closing payment

- 2017 estimated positive free cash flow of ~US$7 million

Revised Acquisition Price US$17.5 million

Under the final closing agreement, the parties have agreed a reduced acquisition price of US$17.5 million and revised closing date of 17 March 2017 (US CST). A US$2 million deposit was paid by Elk in January 2017. The remaining balance of US$15.5 million is payable in two tranches, the first tranche of US$10 million on closing ("Closing Payment"), and the second tranche of US$5.5 million by 15 July 2017 ("Final Payment").

The original US$20 million acquisition price previously agreed under the Purchase and Sale Agreement ("PSA") has been adjusted down by US$2.5 million to US$17.5 million to reflect various capital improvement works identified by Elk during due diligence reviews undertaken during the pre-closing due diligence period and in accordance with pre-closing price adjustment provisions under the PSA.

Funding Completed

Elk has completed a US$10 million convertible loan to finance the Closing Payment with a number of parties, with key terms detailed below:

- 3 year loan term

- 11% annual interest payable semi annually

- Convertible to Elk shares at A$0.103/share at fixed AUD/USD exchange rate of 0.76

- Rolling conversion optionality as follows:
o 1/3 of loan amount on first anniversary
o 1/2 of the remaining loan amount on second anniversary
o Balance of loan amount on third anniversary
o Borrower option to pay out loan amount at any time with payout penalties (being a 20% premium of the loan balance repaid payable by Elk) applying in first 18 months

Appendix 3B notices in relation to the US$10 million convertible loan will be released to the ASX as convertible funds are received prior to closing. The Final Payment is expected to be sourced from Madden project cash flow and additional external funding as required. Discussions are ongoing with potential funding parties.

Madden Gas Field

Discovered in 1968, the Madden Gas Field is a giant, conventional gas field located in the Wind River Basin and one of the largest gas fields in Wyoming. In energy terms, the State of Wyoming is the U.S.'s 4th largest natural gas producer and 8th largest crude oil producer. The field sits on the Madden Anticline and covers an area of over 200 sq. miles / 518 km2 / 128,000 acres. The field produces from multiple reservoir units ranging in depth from 5,000 to 25,000 feet (1500 meters to 7600 meters). With an estimated original gas in place of over 5.5 TCF, to date the Madden Gas Field has produced over 2.42 TCF of natural gas.

According to the U.S. Department of Energy's, Energy Information Administration, the Madden Gas Field is the 33rd largest gas field in the US as ranked by Proved Reserves (Energy Information Administration's U.S. Crude Oil and Natural Gas Proved Reserves 2015 publication).

Long-life Reserves

The Madden acquisition delivers Elk approximately 70 BCF (11.7 MMBOE) of Proven (1P) gas reserves of which 65 BCF (10.8 MMBOE) are classified by Netherland Sewell and Associates, Inc. ("NSAI") as Proved Developed Producing ("PDP") (see the link below).

The asset is forecast to generate positive net operating cash flow of over US$7 million per annum to the Company.

Significantly, because the majority of the reserves secured through the acquisition are classified as PDP under the Society of Petroleum Engineers Reserve Classification Guidelines, no additional capital investment is required to produce these identified hydrocarbon volumes.

Based on the revised acquisition price, Elk has acquired these 1P Reserves at a cost of US$0.25/MCF which is equivalent to US$1.50/BOE on a barrel of oil equivalent basis.

Long-Term Profitable Production

The Madden acquisition delivers long-term, low decline rate profitable production with negligible forward capital requirements in the PDP case. The table (see the link below) sets out the production, sales and cash flow for Elk's acquired working interest in the Madden Gas Field and Lost Cabin Gas Plant for calendar years 2014, 2015 and 2016.

In January 2017 Elk's share of Madden production was 23.5 MMCF/day (4,175 BOEPD) and Elk's share of production revenue was US$2.5 million. Operator forecasts received by Elk show a Madden Unit production life of 50 years.

The achieved Madden sales gas prices in FY2016 were at historic lows. The table below illustrates the current Henry Hub NYMEX futures gas price is materially higher than 2016, and is forecast by industry proponents to be at prices significantly higher than both 2015 and 2016 in the short to medium term.

To view tables and figures, please visit:

About Elk Petroleum Limited

Elk Petroleum Limited (ASX:ELK) (OTCMKTS:EKPTF) is an oil and gas company specialising in Enhanced Oil Recovery (EOR), with assets located in one of the richest onshore oil regions of the USA, the Rocky Mountains. Elk's strategy is focused on applying proven EOR technologies to mature oil fields, which significantly de-risks the Company’s strategy of finding and exploiting oil field reserves.



Brad Lingo
Managing Director/CEO
T: +61-2-9093-5400
E: ir@elkpet.com

Alex Hunter
Chief Financial Officer
T: +61-2-9093-5400
E: ir@elkpet.com

Link: Madden final acquisition pricing $17.5m and financing

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Freeport-McMoRan Inc

Elk Petroleum Limited

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