Sefton - A tiny and very undervalued oil company

Morning all I know this is old new but its good to read, and as we are now at that existing stage i.e the company is making money it looks like there is more to come!!!!!!!

Sefton Hiking Oil Output as Coal Bed Methane Project Progresses

By Stephen Clayson
17 Dec 2004 at 06:57 AM EST


LONDON (ResourceInvestor.com) -- AIM listed junior oil and gas producer Sefton Resources [SER.L] is to begin a major new drilling program at its Tapia Canyon oil field in California before the end of December. Six new wells will be drilled providing new output that will boost company wide production to around 200bpd once completed at the end of February 2005. To put that into perspective, Sefton requires an output of only 75-100 bpd to turn a profit.

The Tapia Canyon field is situated 40 miles north of Los Angeles over 280 acres and is endowed with heavy, viscous crude. Work there has been beleaguered over the past few years, firstly by a disastrous fatal well blow out during in 2001 and then by persistent brush fires in 2003, but Chairman and Chief Executive of Sefton Resources Jim Ellerton feels that the company has overcome these setbacks and now intends to ‘rebuild the confidence of investors’ with its new drilling program.




The heavy, viscous character of the crude found at Tapia means that recovery rates for this type of oil have historically been low, at around 14%. To remedy this, the company is piloting and is likely to adopt a Steam Assisted Gravity Drainage (SAGD) process that according to Ellerton should raise recovery rates to at least 50%, but ‘potentially as high as 80% once the technique is refined’. Implementation of this process across the board will cost around $1.5-2m, but will allow Sefton to hike production from Tapia up to 800-1000bpd, hopefully by the end of 2005 and at an estimated per barrel cost of $6.50. The pilot system is ‘ready to go’; the equipment is awaiting the grant of stringent Californian air quality permits before the trials can begin.

Oil from Tapia is predominantly suited to use in road surfacing or as heavy fuel oil, and is priced slightly above Wilmington 17 crude. Sefton expects Tapia to keep pumping for about the next 20-30 years, and will eventually drill 20 SAGD equipped wells at a cost of $4-5m to boost output further.

Natural gas is also present at Tapia, and was encountered during the 2001 well blow out. Ellerton says that the company will be looking to determine the extent of the resource during the drilling program, and may utilise the gas to lower the costs of the SAGD process by heating the steam with their own gas, or else may simply sell it on the open market.

Work is ongoing at the company’s second Californian field, Eureka Canyon, which will see medium crude production boosted to 150 bpd by the end of 2005 when completed. The field comprises 1550 acres, only 50 acres of which are currently in production, and the full extent of reserves is as yet unknown, offering potential for future expansion.

Plans at Eureka for 2005 consist of bringing idle wells into production, as well as drilling new wells. The company is taking advantage of the buoyant oil price by bringing old wells at Eureka out of desuetude as fast as it can.

Ellerton is sanguine about operating in the somewhat onerous regulatory environment of California, especially as regards environmental restrictions, citing the fact that because many companies have declined to operate in the state for precisely this reason, there are more opportunities around for Sefton. The company in the future may make acquisitions from among the numerous derelict oil fields in the state, and has a number of sites in mind.

Outside California, Sefton is evaluating the potential of Coal Bed Methane (CBM) production in the Forest City Basin area of eastern Kansas. The state contains 53bn tonnes of coal, much of it conducive to CBM production, which in Kansas has grown to 9bn cubic feet per annum in 2003. CBM accounted in the same year for 7.5% of US natural gas production, and has the virtue of being easy to process as it is usually extracted at near pipeline quality. There has been a degree of speculation recently about the potential of the Forest City Basin in this sector and significant attention by a variety of companies.

Rumours abounded in the market some months ago of the acquisition by Sefton of a gas producer in this area, and Ellerton confirms that negotiations are ongoing, but have reached ‘an impasse’ thanks to ‘title problems’. Nonetheless he is still hopeful that the deal will be concluded in the near future.

In the meantime, Sefton has been leasing land in the Forest City Basin, and has amassed 1-2,000 acres of a target land holding of 10-20,000 acres. Ellerton states that the company intends to have assembled these leases and begun a development program by Q2 or Q3 2005, which he hopes will culminate in a 100 well gas field, but exact potential will of course have to be determined in the event.

Ellerton is ‘very excited’ about the CBM project in Forest City Basin and cites its key virtues as being proven reserves and relatively inexpensive land, at around one fifth of the price of comparable CBM property in say Alberta, Canada. He sees Sefton’s activities in Kansas as an opportunity to ‘get in on the ground floor’ and profit from the prodigious potential of the Forest City Basin.

The company’s overarching strategy according to Ellerton is to ‘keep generating cash to fund future acquisitions’. Acquisitions ‘must be cost effective’, and may be made in California, Kansas, or in Canada, where the company has a number of small stakes in producing fields that can keep on generating cash and combined with Tapia and Eureka will provide a ‘platform for future expansion’.

Ellerton says that Sefton may look to establish some joint ventures to increase its reserves and revenues while still preserving its cash pile for other projects. However, it would prefer to retain control in the long term of any joint venture.