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Gotcha! Sefton Resources – The Grim Truth starts to emerge

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AIM listed oil producing penny share dreadful Sefton Resources (LSE:SER) has today issued an RNS which is (by its standards) half way to being accurate. Even so, it is pretty grim. The shares have plunged by 14.5% to a new all time low of 1.325p but I remain of the view that they are worth no more than a fraction of that. They are now 99% down from the IPO price a decade ago, during which time chairman Jim Ellerton has made millions of pounds from excessive boardroom fees. But the stock will fall again and again over the coming years as Sefton’s true predicament emerges. I shall explain below why this is a conviction sell.

But before I start, I remind you that – receiving much BB abuse on the way – I have warned time and time again why this company was a sell. Feeling 100% vindicated this morning ( yup my BB critics it is time to eat humble pie and admit that I was right all along)  I remind you of my warning pieces HERE, HERE, HERE, HERE and HERE.

I also note that Sefton has an IR evening tomorrow at 6PM Tuesday 9th October 2012. It still has a lot of very serious questions to answer. If you want a half price pizza before the fun kicks off check out this piece HERE.

Today’s RNS states:

September production update for California

Sefton Resources, Inc. (AIM: SER), an independent oil and gas exploitation and production company with interests in California and Kansas today announces a production update on its operations in California.

A preliminary oil production estimate has been compiled for oil production in the month of September, 2012 using operational data. This data indicates an estimate of 3,244 barrels of oil produced or approximately 108 barrels of oil per day (BOPD) albeit this operational data will need to be adjusted for any shrinkage to oil quality specifications and water content.

This compares to an average of 98 BOPD in August as reported to the California Division of Oil Gas and Geothermal Resources (DOGGR). Water disposal issues continue to be the limiting factor in the Company’s production. Over the course of the next three months, the Group has planned a number of production enhancements including: workovers, additional drilling, cyclic steaming, water disposal restriction resolution and surface equipment optimization which are expected to have a positive impact on its daily average production rate once they are operative.

With uncertainties associated with resolution of water disposal and timing of other factors, the Company expects to see production steady for the balance of the calendar year with some mild improvements associated with the Group’s ongoing cyclic steaming and production enhancements.

The final production number for September will be available after oil sales numbers are provided to the Company by the oil purchaser, which the Company expects to receive about mid-October. The final production numbers by well will then be submitted to DOGGR for posting on its website.

The Company has historically relied on equity and debt to finance its capital budgets. The Company currently is investigating a number of financing options such as equity, debt and joint ventures, to finance future growth capital needs.

Further information of the production including graphs will be posted on the Company’s website shortly.

Ends.

Where do I start?

1.  On September 11th  2012 the company stated that:

Although oil production for the first half of 2012 at 21,755 barrels or an average of 120 barrels of oil per day (bopd) was higher than in the comparable period (19,968 barrels or an average of 110 bopd in 1H, 2011), there were several factors that served to restrict oil production.  Encouragingly, since this period ended we have seen production in excess of our targeted level of 200 bopd and average in the vicinity of 170 bopd over a limited period. Production rates at these levels provide evidence in support of the effectiveness of the recent drilling, ongoing workovers and cyclic steam flood programmes

The thing is that on September 11th it already knew that July output was just 116 bopd. Since it knows on 7th October what September output was one can assume that by September 11th  it knew what August output was (98 bopd). In other words this statement of 11th July was 100% misleading.

2. September output is piss poor too. This is a company that has repeatedly talked about 200 bopd ( 240 bopd on occassion) but never got close.  First half output averaged 120 bopd. So far in the second half output is averaging 107 bopd. Sefton says it is investing heavily in improving output but so far the trend seems to be the other way. When do we get the second half profits ( or lack of them) alert? When it talks of “steady output” for the rest of the year at what level does it define “steady” – 108 bopd? So is this an admission that Sefton is actually in reverse?

3. “Over the course of the next three months, the Group has planned a number of production enhancements including: workovers, additional drilling, cyclic steaming, water disposal restriction resolution and surface equipment optimization which are expected to have a positive impact on its daily average production rate once they are operative.”  Well I do not believe a word Sefton says any more but, in case you do, the statement above is from today. I now refer you to other statements made about steaming, etc, etc:

July 11th 2012: “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.”  – Er… we now know that the 170 bopd number was sheer fantasy and, so far, all that steaming and workover activity has seen output actually FALL not be on a “rising trend

May 2nd 2012 ( a pre placing ramp): “Remedial work by workover rig has already allowed oil production to increase to 142 BOPD with as much as 220 BOPD recorded in recent days. Four more well workovers expected to lead to a further increase in production.  Cyclic steaming ongoing with the Yule #5 well showing a 200% improvement in production post-steaming. Oil production at California is now heading towards expected levels with further increases expected from the ongoing well workovers and cyclical steaming programs.”  As we all now know output numbers for May were 135 bopd, falling to 101 bopd in June.

25th January 2012: “Three new wells on the Tapia oil field in California are in production, with initial flows improving as expected which should stabilise within the next 30 days, at which time relevant data will be announced.  A workover program of certain wells at Tapia and the recommencement of cyclic steaming is expected to provide a further increase in oil production.”

Do I have to go on?

4. “The Company has historically relied on equity and debt to finance its capital budgets. The Company currently is investigating a number of financing options such as equity, debt and joint ventures, to finance future growth capital needs. “

Oh please. Does Jim and his IR flunky (Dr) Green reckon we are daft? Sefton has never generated enough cash from California to cover a) the capex needed to maintain let alone increase output and b) the bloated PLC costs (notably Jim himself). It has taken on debt in the past which it has no hope of repaying from current cashflows. So it asking for more debt is like Greece asking for more debt. Frankly I would rather lend to Greece. And so that leaves equity. After 10 fund raisings in the past 3 years lucky Jim has trousered a fair old wedge but investors have seen the stock price obliterated as they have been diluted to hell. More of the same is inevitable.

I see that my pal BrokermanDan is saying that it is time for a change of board. I disagree. This company is worth sod all. Having to pay off Jim et al ( I bet they have great service contracts) is something Sefton cannot afford.  Frankly I can see no solution only further destruction of shareholder value.

Once again, as Sefton is forced to make another embarrassing admission but still cannot ‘fess up to the true current state of affairs and admit fully to what it has done in the past, I say to Jim: “Gotcha.”

Tomorrow evening I intend holding the toes of Ellerton and Green to the fire and make their life hell at the Sefton IR shindig in London, asking questions that I do not believe they can answer. I hope you will sign up and join me there.

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Comments

  1. Brian says:

    Dear Tom, I think you are in part responsible for the pressure you have been putting on Jim Ellerton for today’s very honest news announcement. Without you, I am guessing it would have been another bullshit RNS from JE causing mislead investers to hold, buy or top-up. You should be praised and pillored – so I respect you and the power of the internet.
    Nonetheless, tomorrow should be interesting. Will Tom say what he preaches and put the nail in the coffin OR will he shreik away like a mouse, and let JE take over with his bullshit? At 6pm GMT tomorrow night we’ll all find out….

  2. Brian says:

    CORRECTION: The above should read: praised not pillored

  3. steve says:

    dear tom , yes you have caught jim and his dream factory out , but is nt it usual when you do a piece like this to declare your interest . ie whether you are a holder of stock .
    i for one am aware of the problems at sefton , and i believe that a management change is the only effective solution to the past and current lack of progress . jim has had far to long to put things right. surely hendersons will now demand change as a condition of further funding , or are you simply forgetting that.
    i remember believing in your optomistic forecasts in a company you have left for broke , so when you talk about companies not being worth anything , i know you speak from personal achievement .
    thank you for your summation of what we already know

  4. Brian

    I have no intention of being a mouse tomorrow.

    Steve

    I have no position in SER either way. If I did I would declare it.

    I am not so sure folks would know all about SER had I not prodded the company.

    As to the other company you refer to. I stopped beng CEO a year and 9 days ago. There is a lot I am not saying. I have not exactly gained financially from the experience either. But I am sorry for all those who have lost out.

    Tom

  5. Adrian

    I never pretend to get everything rioght. Far from it. You can believe what you wish regarding SER. If you think I have got it all wrong go fill your boots. See if I care.

    As an aside I have declared that I have no position in SER. Do you?

    There is a phrase about playing the man not the ball. Another about shooting the messenger. You may think I am hopeless but how about reading the articles and seing if I am ( just for once) correct in my assessment. If you think not, it is your money – go ahead FYB.

    Your call

    Tom

  6. Brian says:

    Adrian, I think Tom has learnt through experience and is just passing down his wisdom. You don’t need to remind him like an old record player. How old are you anyway?

  7. Adrian

    Good answer. I commend you for that. It might seem as if I am obsessive about SER. The issue with a company like this is that you cannot really make an impact with 1 piece. You push, and push and then today after 7 or 8 articles you have a Gotcha moment. I am not finished here yet..

    But you are correct in your assessment of many AIM resource stocks. Not sure about 90% but there are far too many where boardroom may bears no link with shareholder value creation. And there are quite a few where RNS releases do not bear too much scrutiny. And it is not just resource stocks. I have written very actively about Chinese stocks on AIM (here) and on Nasdaq (Seeking Alpha).

    Sadly there is only so much time in the day to spend researching and writing. So I cannot have a go at them all. What I can do is pepper quite a few with a start up piece and then really push on a few. Expect the SER treatment to be applied elsewhere.

    More details on my various outlets to see exactly what I am up to on TomWinnifrith.com – ADVFN is just one of many places I write

    Best wishes

    Tom

  8. Roberto says:

    Steve,
    The difference between Tom Winnifrith and Jim Ellerton as CEOs is that Tom never intentionally cheated his investors out of anything, and as he mentioned – he never made a dime. Jim, the greedy fucking fat cat, on the other hand is taking the mick with his deliberate lies and taking everyone for a joy ride with his exageratted lies and projections — all for self gain.

    Tonight we’ll see some firworks in the Armourer’s Hall.
    White knight Vs Fat Pig
    Winnifrith Vs Ellerton
    All the hallmarks of beijing better than Kasparov Vs Karpov I reckon.

    I’ll enjoy tonight , greedy AIM CEOS simply cannot keep behaving in this manner and so I give my 100% backing to the White Knight.

  9. Bob says:

    “Tom never intentionally cheated his investors out of anything, and as he mentioned – he never made a dime.”

    LOL

  10. Roberto says:

    Bob, bitter are we?

  11. Bob says:

    Roberto

    No, but I suspect many t1ps subscribers and Rivington Street Shareholders might find your comment somewhat amusing.

  12. Roberto says:

    Overall his tips are good, as long as you did not put all your eggs in one basket, you should be sitty pretty.

  13. Monty says:

    Tom hope your right, everyone who is selling their holdings is losing money in Sefton thanks to your advise,
    When Sefton recover and they will, you are going to egg on your face once again. Now give it a rest and go and find another Rivington Street.

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