GRIEVE For personal use only relocated to Elk’s USA office ... · The scheduling of further well and facilities work at Grieve will be determined by the approval of the environmental

ELK PETROLEUM JANUARY 2012

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QUARTERLY REPORT

Ash Creek images (top to bottom): Rig at Trusler #8; Setting tanks ready for Barry #2 workover

HIGHLIGHTS

GRIEVE

• Wells ready for carbon dioxide (CO2) injection at Grieve Enhanced Oil Recovery (EOR) Project.

• CO2 injection has been deferred until Bureau of Land Management (BLM) approval of the environmental assessment (EA) of the EOR Project.

• Force majeure claimed on commencement of CO2 deliveries from ExxonMobil.

ASH CREEK

• Laboratory work to re-commence using suitable existing core material that effectively saves the cost of drilling a new well.

• Staged development options are being simulated using the reservoir model of the field.

• Workovers and logging underway to test residual oil saturations and delineate more wells suitable for early pilot area chemical flooding and/or expanded water-flooding prior to chemical flooding.

MANAGEMENT RELOCATION TO CASPER

• Directors, Bob Cook and Neale Taylor, have relocated to Elk’s USA office in Casper Wyoming.

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GRIEVE FIELd EOR PROJECT

The workovers of existing wells necessary for the start of CO2 injection at Grieve were completed in December. Nine of the 10 wells planned to be utilised in the Grieve EOR project as CO2 injector wells are ready and awaiting for CO2 injection. Several other wells have also been worked over and are ready as future production wells.

Elk’s share of the cost of the well workovers is within previous estimates for this phase of development. The work has been performed on schedule allowing for the originally planned injection of CO2 by 1 February 2012.

The scheduling of further well and facilities work at Grieve will be determined by the approval of the environmental assessment (EA) of the project by the BLM which also will determine the commencement of CO2 injection in the field. The BLM has indicated their intention to issue a

revised EA approval schedule in January 2012. Without BLM approval of the EA, the scheduled construction of the new CO2 spur pipeline from the existing Anadarko CO2 trunk line to the Grieve Field cannot commence. This means the spur pipeline cannot be completed to meet the commencement date of 1 February 2012 for CO2 supply under the contract with ExxonMobil. As a result, Denbury, to whom Elk assigned the Grieve CO2 supply contract, was left with no option but to invoke the force majeure terms of the contract.

Delivery of CO2 to the available injection wells is expected to occur approximately six weeks after the BLM unconditionally approves the EA.

GRIEVE FIELd NIOBRARA APPRAISAL

To date, Wyoming consultants Goolsby, Finley & Associates (GFA) have not had any meaningful responses from the various producers which were approached as possible farminees to Elk’s 100% working interest in the Niobrara formation at Grieve. The matter will be further pursued

in 2012. Potential farmin parties appear to be waiting for reports of encouraging results from wells already drilled or underway in the Wind River Basin, which to date has had few Niobrara wells drilled when compared to the adjoining Powder River and DJ Basins.


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ASH CREEK OIL FIELd REdEVELOPMENT

Sufficient existing Shannon formation core material has been located in order to conduct further planned laboratory testing; this core comes from a well in an adjoining field with very similar reservoir characteristics. Elk’s laboratory testing and chemical flooding advisers have indicated this core is suitable for laboratory work to be undertaken. By locating this existing core material, Elk should be able to expedite laboratory testing and potentially avoid the immediate expenditure required to drill a well to obtain new core.

Radial and linear core flood laboratory tests are planned. These tests will provide significant physical information about the expected performance of chemical combinations that might be injected into the Ash Creek reservoir and assist in the technical planning of the project. Additional core flood testing may be considered with fresh Ash Creek core material if, and when, it becomes available. The laboratory core testing is scheduled to commence around the end of February 2012 with results available by mid April 2012.

The reservoir simulation model prepared and history matched by Elk’s engineering consultant, Surtek, is currently being employed to investigate various staged development options for a chemical flood at Ash Creek. If those results are encouraging, it is possible Elk could have an initial stage, or pilot, project in operation before the end of 2012. This initial stage will be designed to fit within Elk’s funding capacity and Elk’s plans for full field development.

Elk has mobilised a workover rig to the field to re-enter a limited number of additional wells to gather data to assist in refining the reservoir model. A carbon-oxygen log has been run in one of these wells to obtain an estimate of the current oil saturation in the reservoir. This will be compared to simulation estimates to upgrade the calibration of the simulation model.

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3

123 West 1st StreetSuite 550

Casper, Wyoming 82601USA

TEL. +1 (307) 265 3326FAX. +1 (307) 265 3312

EMAIL. [email protected] WEB. www.elkpet.com

Elk Petroleum Limited is an Australian Securities Exchange-listed oil and gas production, development and exploration company with assets located in the Rocky Mountains, USA. Elk’s strategy is to acquire and re-develop mature oil fields in the USA using both conventional and new extraction techniques.

CORPORATE SECTION

PROdUCTION ANd REVENUE

Total production during the December quarter was 956 barrels from Grieve and 770 barrels from Ash Creek. Grieve production was back to normal after the shut down associated with the Grieve EOR project. Ash Creek oil production from the Trusler#1 well appears to be increasing with a 5.6% uplift over the previous quarter arising from a combination of a fluid rate increase and a slight improvement in the oil cut.

HEREFORd GAS FIELd dEVELOPMENT FUTURE PROSPECTS

Discussions and market studies continue in regard to establishing a small-scale power generation project using Hereford gas. Elk is continuing discussions to explore this possibility with a local utility company.

Elk is continuing to investigate and evaluate a number of EOR prospects located in the Rocky Mountains region as well as alternative EOR technologies.

Net revenue for the quarter was A$28,794 and represents Ash Creek income only. Net revenue for the quarter for the Grieve Field is reported as nil per the terms of the Purchase and Sale Agreement entered into with Denbury Onshore, LLC and effective 1st April 2011.

For further information please contact;

Bob Cook, Managing Director / Chief Executive Officer

FINANCIAL POSITION

The closing cash position as at 31 December, 2011 was A$5,927,830. During the quarter, the Company raised approximately A$6 million. Expenditures during the quarter covered overheads plus consultant study work on Ash Creek and screening possible new EOR projects, cost associated with shutting shut-down the North Sydney office and work-overs at the Grieve field. Refund of $290,000 for Grieve EOR project work-overs was due at year-end.

The average price received for Grieve and Ash Creek oil for the quarter was US$87.35 per barrel which was 7.0% higher than the prior quarter. The average exchange rate for the period was 1.012 which was 3.8% lower than the previous quarter.

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Appendix 5B Mining exploration entity quarterly report

+ See chapter 19 for defined terms. 17/12/2010 Appendix 5B Page 1

Rule 5.3

Appendix 5B

Mining exploration entity quarterly report Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10

Name of entity

ELK PETROLEUM LIMITED

ABN Quarter ended (“current quarter”)

38 112 566 499 31 DECEMBER 2011

Consolidated statement of cash flows Cash flows related to operating activities

Current quarter $A’000

Year to date (6 months) $A’000

1.1 Receipts from product sales and related debtors

29 92

1.2 Payments for (a) exploration & evaluation (b) development (c) production (d) administration

(299) (474)

(424) (1,246)

1.3 Dividends received 1.4 Interest and other items of a similar nature

received 6 7

1.5 Interest and other costs of finance paid (1) (2) 1.6 Income taxes paid 1.7 Other (provide details if material)

Net Operating Cash Flows

(739) (1,573)

Cash flows related to investing activities

1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets

(198)

(198) 1.9 Proceeds from sale of: (a) prospects

(b) equity investments (c) other fixed assets

1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other (provide details if material) (126) (211)

Net investing cash flows

(324)

(409)

1.13 Total operating and investing cash flows (carried forward)

(1,063)

(1,982) F

or p

erso

nal u

se o

nly


+ See chapter 19 for defined terms. Appendix 5B Page 2 17/12/2010

1.13 Total operating and investing cash flows

(brought forward)

(1,063)

(1,982)

Cash flows related to financing activities

1.14 Proceeds from issues of shares, options, etc. 6,090 6,090 1.15 Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings 1.17 Repayment of borrowings (16) (16) 1.18 Dividends paid 1.19 Other (share issue costs) (44) (44)

Net financing cash flows

6,030 6,030

Net increase (decrease) in cash held

4,967

4,048

1.20 Cash at beginning of quarter/year to date 1,116 2,174 1.21 Exchange rate adjustments to item 1.20 (115) (254)

1.22 Cash at end of quarter 5,968 5,968

Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the related entities

Current quarter $A'000

1.23

Aggregate amount of payments to the parties included in item 1.2

177

1.24

Aggregate amount of loans to the parties included in item 1.10

1.25

Explanation necessary for an understanding of the transactions

Breakdown of item 1.23: Non executive directors $ 84k Executive Directors $ 93k

Non‐cash financing and investing activities

2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows

2.2 Details of outlays made by other entities to establish or increase their share in projects in

which the reporting entity has an interest

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Financing facilities available Add notes as necessary for an understanding of the position.

Amount available $A’000

Amount used $A’000

3.1 Loan facilities

3.2 Credit standby arrangements

Estimated cash outflows for next quarter

$A’000

4.1 Exploration and evaluation

200

4.2 Development

700

4.3 Production

240

4.4 Administration

450

Total

1,590

Reconciliation of Cash Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows.

Current quarter $A’000

Previous quarter $A’000

5.1 Cash on hand and at bank 5,968 1,116

5.2 Deposits at call

5.3 Bank overdraft

5.4 Other (provide details)

Total: cash at end of quarter (item 1.22)

5,968 1,116

Changes in interests in mining tenements Tenement

reference Nature of interest (note (2))

Interest at beginning of quarter

Interest at end of quarter

6.1 Interests in mining tenements relinquished, reduced or lapsed

6.2 Interests in mining tenements acquired or increased

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Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates.

Total number Number quoted Issue price per security (see note 3) (cents)

Amount paid up per security (see note 3) (cents)

7.1 Preference +securities (description)

N/A N/A N/A N/A

7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy‐backs, redemptions

N/A

N/A

N/A

N/A

7.3 +Ordinary securities

7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buy‐backs

Opening 115,857,152 (a) 16,550,010 Issued 25/10/2011 (a) 2,631,579 Issued 2/11/2011 (a) 10,930,000 Issued 28/11/2011 (a) 1,942,105 Issued 1/12/2011 (b) N/A Closing 147,910,846

Opening 115,857,152 (a) 16,550,010 (a) 2,631,579 (a)10,930,000 (a) 1,942,105 (b) N/A Closing 147,910,846

(a) $0.19 (a) $0.19 (a) $0.19 (a) $0.19 N/A

(a) $0.19 (a) $0.19 (a) $0.19 (a) $0.19 N/A

7.5 +Convertible debt securities (description)

N/A N/A N/A N/A

7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted

N/A

N/A

N/A

N/A

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7.7 Options (description and conversion factor)

100,000 100,000 500,000 100,000 200,000 50,000 81,450 146,000 100,000 100,000 100,000 750,000 2,327,450

Exercise price 27 cents 52 cents 64 cents 52 cents 23 cents 20 cents 20 cents 20 cents 20 cents 20 cents 20 cents 20 cents

Expiry date 5 June 2012 19 June 2013 17 February 2013 19 June 2013 13 October 2013 24 June 2014 30 June 2015 10 October 2015 24 October 2015 24 October 2015 5 December 2015 30 June 2016

7.8 Issued during quarter

N/A N/A N/A N/A

7.9 Exercised during quarter

N/A N/A N/A N/A

7.10 Expired during quarter

Expired 500,000 Cancelled 100,000 50,000 200,000 50,000 50,000

Exercise price 60 cents 27 cents 52 cents 37 cents 20 cents 20 cents

Expiry date 24 November 2011 5 June 2012 19 June 2013 14 August 2013 24 June 2014 30 June 2015

7.11 Debentures (totals only)

N/A N/A

7.12 Unsecured notes (totals only)

N/A N/A

Compliance statement 1 This statement has been prepared under accounting policies which comply with

accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 5).

2 This statement does /does not* (delete one) give a true and fair view of the

matters disclosed.

Sign here: ............................................................ Date: 31 Jan 2012 (Company secretary)

Print name: David Franks

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Notes 1 The quarterly report provides a basis for informing the market how the entity’s

activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.

2 The “Nature of interest” (items 6.1 and 6.2) includes options in respect of

interests in mining tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.

3 Issued and quoted securities The issue price and amount paid up is not

required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of

Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International

Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.

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Documents

GRIEVE For personal use only relocated to Elk’s USA office ... · The scheduling of further well and facilities work at Grieve will be determined by the approval of the environmental