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Another day and another release from AIM listed oil and gas penny share dreadful Sefton Resources (LSE:SER) which is laden with optimism but tells you absolutely nothing. But it does at least appear that there is some movement on disclosure – i.e. it admits that the market was misled but it has not admitted to the big lie. The shares are up on the hype but remain a stonking short ahead of the next inevitable issue of equity to pay chairman Jim Ellerton’s monstrous fees (as noted here)
Incidentally in response to my invitation to Jim, Sefton and its IR man Mr Green to sue me for asking if they could explain why prior RNS statements did not contain lies I have heard nothing.
So what is the story, oops I meant news, today?
First up. The company says that
“A Purchase and Sale Agreement has been signed for the acquisition of a 100% working interest in a lease with 14 well bores, surface equipment and water disposal facilities.” Jim adds “The acquisition of this lease in Leavenworth County is expected to kick start the Company’s oil production in Kansas. In our area of interest in Northeast Kansas, the oil produced comes with associated gas and water. Our pipeline infrastructure system is in the process of being connected to the Southern Star interstate system which will allow such associated gas to get to market. The water disposal facilities that come with this acquisition are extremely beneficial for Sefton and will expand our options for maximizing future oil and gas production.”
Okay the company admits that it cannot actually do the deal until certain “title issues” are dealt with. As ever there is no detail on this. Secondly we have no idea what Sefton is paying and what these wells might actually produce. How much capex is needed to get them going? My guess is that Sefton’s other operations they need a lot of capex to workover a dull old field which will thus never produce much in the way of free cashflow.
Second. The company says that
Additional oil production data from California can be viewed on the Company’s website.
Oooh er missus. I wonder what prompted this increased disclosure? With joy I go to the website where I see the statement from 11th September:
Oil production is averaging 170 barrels per day and is on a rising trend as the programme of well workovers and associated cyclical steaming continues with production peaking at over 200 barrels of oil per day.
As we know oil production was actually 116 bopd in July and 97 in August ( down from 120 bpopd) in H1 so where is the detail that justifies this lie ( oops, sorry, statement)?
I would assume it is the link “ Variability in Production Reporting.”
The link seems to be broken. But a kind reader has send me the actual document which is long and full of utter bullshit but in reference to the claim above it admits to “Reporting Discrepancies” stating:
When evaluating some of the well work completed mid to late June, a snapshot of production numbers were reported from the last week in June and the first four days in July. These were tank gauge production numbers. Adjusted numbers were not yet available (oil sales numbers were not finalized until 13 July), nor would monthly adjusted numbers have been meaningful for well evaluation since there was a full week of downtime in the first half of June for a major tank repair. These daily numbers did average 170 BOPD for that period and were reported to management in a Memorandum dated 5–‐July–‐2012. The monthly average production (DOGGR reported figures) For June was below the 170 BOPD figure due to the tank downtime and well work. Due to the Aforementioned operational issues, these numbers did not hold up, but were indeed true at the time.
This is bullshit. Yes Sefton issued a claim on 11th July promising Dr Ali’s report by the end of the summer in which it also made the average 170 bopd peaking at 200 bopd claim. We now know this is based on just a few days data. But it also repeated that claim in its interims on 11th September by when it must have known that July output was just 116 bopd and that August was at 97 even worse. DOGGR knew. So the statement of 11th September was deliberately misleading. That of July 11th was based on such flimsy evidence that it was simply reckless ramping to put it out.
The report contains more bullshit as it seeks to say that you might interpret output on a normalised basis by ignoring days when for some technical reason or another output was comprimised becuase of the need to do repairs etc. But looking at the accompanying chart it is clear that such downtime is a feature EVERY month. For an old field requiring constant makeovers normal is to have constant downtime. Sefton can pretend that we should look at its output on a “normalised way ie including days when there is no output” but imaginary output does not generate cash.
But the best bullshit is saved to last. Sefton has a graph showing projected output based on improvements it plans to make and we see that a field that has produced more than 200 bopd in a month only once in 25 years is suddenly expected to see output go through the roof. For 2013 the company forecasts c170 bopd. By 2014 we are expected to believe that 220 is on the cards and by 2018 900 bopd is projected. Presumably this ramp up is largely down to the new steamflood project which Dr Ali’s long promised report will cover and which will cost $50-75 million – money Sefton simply does not have.
Finally Jim ( cost to company in 2011 c $600,000 – have you repaid those cash advances Sefton made to you yet Jim?) reassures us that:
“Over the coming months, the news flow is expected to increase with the Company intending to announce a number of events including: the gas pipeline in Kansas becoming operational; oil production from Kansas; further lease acquisitions in Kansas; additional workover activity; drilling; improvement of surface facilities at Tapia; and, a report from Dr Ali on the application of a full field steamflood at Tapia. Year-end engineering reports will include these events.”
Aha. More jam tomorrow. Why not just announce things as they happen? And as for Dr Ali’s report? Jim has been saying that this is imminent in RNS after RNS for two years. I suppose it would not be Sefton if it didn’t promise ( in a Nick Clegg fashion) the imminent release of Dr Ali’s report. The chances of it emerging soon? Er…
Today’s statement is disingenous, it admits that one RNS was misleading but not that the interim results statement contained what Sefton must have known was a lie re production. As for the rest… sheer garbage.
Sell.
Tom you’re a fucking genius!
Tom, unfortunately you are correct on every point you mentioned. You may now be banned from the upcoming Sefton investor meeting
James
In which case
a) My cameraman will film them booting me out & I shall post the footage here for all to see
b) Those who are joining me for a half price pizza at 4.45 PM on Oct 9th will each be given one of the questions I have to ask. They can ask them for me
Tom