Contract: Woodland Beast - Velen
Location: Border Post or Oxenford
Quest Giver: Notice Board
Other Requirements: N/A
For this quest you'll need to speak with the Captain of the Guard who is right next to the Border Post's Notice Board. He'll update your quest and send you to an area southwest of where we currently are to investigate the area where the caravans are being destroyed.
When you arrive you'll be attacked by some Alghoul enemies, defeat them then use your Witcher Senses to inspect the looted chests as well as the body placed up against one of the carts. After you inspect both of those you'll also want to search the foot prints that lead from the road up to this crash site.
Keep using your Witcher Senses and follow the foot prints across the road and down to the River. You'll lose them briefly at the pack of Drowner enemies but the prints continue again on the other side of the river. Follow them up the hill to a large tree and you'll trigger a scene with an elf in the tree.
You're presented with 3 options, if you choose any option except the "take me to your leader" one you'll have to fight the elves. Additionally, if you ask them to take you to their leader and you refuse to surrender your weapons - they'll attack you in this instance too.
After listening to the elves you can either choose to kill them all or let them live. If you decide to kill them all, you'll find a Sword next to Vernossiel that you can grab to fight, since you'll be unarmed after the dialogue. Be sure to loot he Squirrel Tail from Vernossiel's corpse as you'll need that to give to the commander for proof you finished the quest.
Tip: You can choose to let the elves live while you're at their camp, then right after you get your weapons back from them, attack them all.
If you decide to let the elves go free then you'll have to return to the Captain of the Guard and either tell him about the elves or not. Telling him about the elves will get you 25 EXP and the Border Pass which grants you access to the town up north. If you tell him there was no monster and you found nothing, you only get 25 EXP and no Border Pass.
Note: If you let the elves live then decide to tell the Captain of the Guard about them, Vernossiel will attack you at some point later in the game shouting about how you betrayed her.
Killing the elves and turning in the Squirrel Tail to the Captain of the Guard gets you the best reward of 25 EXP, 30 Crownd and the Border Pass.