Sefton Resources IR Shindig – Jim Ellerton skewered, buggered and humiliated

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Give him his dues, Jim Ellerton, chairman of AIM listed oil penny share dreadful Sefton Resources (LSE:SER) took his public skewering, buggering and abject humiliation with some grace. But, make no mistake, his IR Shindig at London’s Armourer’s Hall last night was utterly disastrous. He might find a few more suckers to buy his stock – some folks are so stupid that they deserve to lose money. But the admissions extracted, the accusations he could not answer and a presentation that is now, I gather on Sefton’s website, and which basically shows why this company is such a worthless POS left objective and experienced observers in no doubt as to where this is heading. Down. I summarise below the main skewerings of an event which has been captured on video which I may release in part shortly. For the avoidance of doubt my target price is 0.1p.

TW: The presentation Jim offered last night referred to this company producing 120 bopd. Given that it managed 120 bopd in the first half but has since managed monthly totals of 116, 98 and 107 why do you assert that this is a 120 bopd producer – is that not misleading?

Moreover on Sept 11 2012 you claimed in an RNS statement that output had averaged 170 bopd over short periods and touched 220 bopd in the second half. By then you must have known that July output was 116 bopd and August output 98 bopd. Why did you issue such an utterly misleading statement and not just state the truth?

Jim: Bluster answer on point 1. On point 2 he insisted that the NOMAD Fox Davies had agreed the Sept 11 statement as being fair and that at that time it did not know August numbers although it did know July numbers ( something TW said he did not fully believe as Jim must have had some idea that August was piss poor). Jim said that the 11/9 statement showed the potential of Sefton. I retorted that it was patently misleading. It was.

Some Northern bloke (very angry)  asked how Jim could justify earning $500,000 a year when the shares had over a decade plunged from 95p to c1p.

Jim: I do not earn $500,000 it is less than $300,000 and we are working on creating long term value. That is not reflected in the share price. The very angry Northern bloke then read out Jim’s package from the 2011 annual report which was, knock me down with a feather,  indeed well over $500,000 and insisted that the market does not lie. As a shareholder in the company he then repeatedly and with increasing anger demanded Jim’s immediate resignation.

A long term shareholder ( seemed worried but not angry) asked about the Kansas pipeline operation where we have now been promised an October commissioning ( much delayed). Jim blamed delays on Southern Star ( the US $2 billion capitalised giant) into whose pipeline Sefton’s pipe must be joined. But Jim then warned that the appallingly low US gas price plus the need to build a critical mass of gas supplies means that the pipeline will not be generating any cash/pumping gas this calendar year. Hmmm.

Jim elaborated on the frustrations of doing business with 3rd parties who let you down as he turned to Dr Ali’s long promised waterflood report on California.  Here he sent mixed messages and I had to push him for clarification. At one point he said the report was almost ready and thus he knew that the cost of implementing the proposals was only $20 million. But later he said that the report was not in yet and that Sefton did now have a plan B of getting a new expert to produce a report and canning Dr Ali altogether after more than 2 years of non delivery. On balance he still expected Ali to deliver. But if Ali has not yet delivered I wonder where we get this $20 million number from?

Jim then asked his new FD Tom Milne ( who I chatted to afterwards in an amicable fashion when not chatting up a very pretty and charming bird from Harrow) what he thought of Dr Ali. Rather oddly Milne said “I have never met him so do not have a view.” I begin to wonder if Dr Ali exists or if he is like all those airline hostesses my pal Jon used to claim he was dating ( but who were never around when I met Jon) before finally admitting that he had been batting for Turkmenistan all along.

Jim declined to give a precise timeline on the Ali report saying that if he did and missed it I would give him a mild roasting. I reported that if I roasted him only mildly than I would be slipping up.

TW: I pushed Jim on his pay. I want to see ALL Sefton’s annual reports published on its website so that shareholders can realise how much Jim has trousered over the years. He declined to agree to that proposal. For the record I reckon that since IPO the number is $3-4 million ( remember the shares have lost 98% in value over the same period). I asked about the “cash advances” given to him. He denied these were long term director advances ( director loans are illegal in the UK) and said there was a rational explanation which was all to do with tax planning and he would send me details.  I look forward to that.

Another northern chappy accused Jim of lying over the issue of the November 2011 announcement as part of a pre-placing ramp that it was drilling 4 wells in California when in fact – as Sefton admitted post placing – it had permits for only three of the wells. The Northern chappy accused Jim of lying in an RNS ahead of a placing. Jim denied this and the two just could not agree. This northern chappy also seemed very angry.

I then weighed in with a question relating to the presentation. About 5 or 6 slides in there are a series of bar charts of which 2 are critical: capex  by year and operating cashflows by year. Jim makes great play of how this is a long term investment/project and of the fact that Tapia in California generates positive operating cashflows. Yes, but at what cost?

Jim warned that H2 capex would be greater than H1 capex this year so I assume a FY total of c$4 million. That will mean that between 2007 and 2012 (inclusive) Sefton has invested c$18.5 million into Tapia. Its operating cashflows in that period from Tapia are c$5 million. The sheer futility of Tapia (a very old field that needs huge ongoing capex merely to maintain output let alone to increase it) is demonstrated by that 3-4 well programme of Q4 2011/Q1 2012 which must have cost $3.5 million. How much oil are those wells producing? I reckon 20 bopd ( Jim would not say) on a $29.50 margin (Jim’s number).Do your maths. This is a rotten payback.

Jim insisted that the capex is front end loaded and will deliver long term uplifts in output towards his targeted output of 240 bopd. But the man has had 10 years already and has been spouting the same old crap for years. I admitted to being such a geek that I had read all his RNS statements and if you go back to 2005 and earlier you will see references to 200 bopd and why that number will grow very soon due to waterflooding, steaming, capex etc. The point is that it never does. Output has only once ever beaten 200 bopd for a whole month in the 30 years this field has been operational. Output now is massively lower than it was 7 or 8 years ago despite all that capex.

And so I pushed Jim. If after yet another splurge of capex output did not hit 240 bopd or close consistently by mid next year would he do the honourable thing and quit. He said that he would not but would agree that if that happened Sefton will not piss away any more cash on Tapia but would seek a 3rd party investor to farm in to fund development.

For what it is worth, I think this is utter baloney. After pissing away $17 million to date ( with another $1.5 million underway so exhausting most of Sefton’s cash pile by Christmas) Tapia is now producing at its lowest level in years. This is a duff old field where consistently capex is greater than operational cashflow which in turn has in all years bar one been less than the bloated PLC overhead. I do not think there is a cat in hell’s chance of Tapia suddenly achieving by the middle of next year what it has never done in its entire life. And who would want to farm in to a field where it takes $18 million of capex to deliver $5 million of operating cashflow? I would write off Tapia now.

FD Milne admitted that I was a charming and dispassionate questioner but sadly the same could not be said of the very angry Northerner who returned to the floor with another blistering attack on Ellerton demanding his immediate resignation for destroying value (98% of it).  Ellerton retorted that the share price did not reflect the underlying value which he reckons is far greater than 1.325p per share. Mr very angry Northerner insisted that the market did not lie.  Outside the meeting Mr Very Angry Northern shareholder seemed like a delightful bloke. But losing 98% of your dosh hurts.

 The host from Mining Maven ( a very likeable man called Malcolm who, I should say, organised the event with some style and compered, what was bound to be an evening of fireworks, jolly well) then said there was time for one last question. But the floor was silent.

And so, I said that for my old pal Jim I was prepared to fill in the gap. I do try to be helpful, as I pointed out to all present.

If Jim reckons that AIM fails to value Sefton correctly, surely – I asked – he has a fiduciary duty to shareholders to appoint advisers tomorrow to sell off the various parts and realise value that way?  Jim disagreed arguing that he can add more value given time and said that, anyhow, it was a decision for the whole board.

Since at least half the board was present I then said “well how about it fellows – why not vote on it now”. They declined.  

I think that the break up value of Sefton is well under the current share price. It is all very well blathering on about reserves but if it costs you 18 bucks to get 5 bucks of profit out of the ground from those reserves the value of those reserves on a DCF basis is less than £0, That is how I would value Sefton’s California reserves and, almost certainly its reserves in Kansas too. Check out RNS statements from 2005 and earlier on Kansas. It was jam due tomorrow (but pretty soon) back then. Here we are and it is still not generating a jelly bean. The LAGGS pipeline might be worth a bit but more than Sefton’s debt and other liabilities? I very much doubt it.

The worried but not angry shareholder had earlier asked about succession planning. Jim is past retirement age but seems in good enough nick. Jim reckons that would come about via a merger but the reality is that Sefton has a listing but the value of its underlying assets minus liabilities is just not that great if indeed it is anything at all. So I do not see how that will happen.

My assessment? I have never been either long or short of Sefton. I only stumbled across this company in August (or was it July?) when it made a curious statement about how its broker (who had just been awarded a stack of options in Sefton) would publish a detailed research note after September interims. I described this as an invitation to front run that I would pass on. Incidentally that note has yet to appear.  For me this has been a fascinating exercise in textual and financial analysis while I kill a bit of time.

My assessment is that the company will not meet Jim’s production targets for Tapia but that it will continue to issue shares to fund whatever is seen as the next project to promote and to fund boardroom largesse.  Those capex/operational cashflow numbers over 7 years are a damning indictment of management and of Tapia. I regard these shares as more or less worthless.

That is me done for now on Sefton. My writings and my writings alone have forced this company to admit to things it would never have done otherwise including stating boldly the capex/operating profits bar charts. My target price is 0.1p but I shall now be giving Jim a break unless he issues another daft RNS in which case I shall take him apart once again. Jim: I am watching you. But from the sidelines.

If you need a reminder of my articles to date on this fine example of naked capitalism at its best they can be found HERE, HERE, HERE, HERE, HERE, HERE and HERE

And here is the piece where I invited Sefton to sue me after I asked it to explain why it has not told lies ( no suit yet)

And here is my Sefton special caption contest with some jolly funny entries posted below

But for now I am turning my intense scrutiny elsewhere.  I have won the argument here and won the battle. In due course as this company unravels I shall be utterly vindicated. At which point I shall come back for a valedictory crow. But the war machine now moves on.

I have a three or four initial targets on AIM. I have already fired my opening shots for all bar one. Watch this space.

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  1. Malcom says:

    Tom, You were brilliant last night. A complete humiliation of Jim Ellerton and look forward to seeing the re-run on Youtube!

  2. C H Ingoldby says:

    A humiliation for Jill Ellerton that leaves him counting his great stacks of money.

    Odd humiliation.

  3. Bob says:

    Given the massive fall in the share price from around 95p to today’s 1.5p and the apparently now obvious abuse of company funds etc it seem strange that only now do all the ‘so called’ pundits come out with their opinions.Bit late for the majority of shareholders it seems although saving even 1.5p is better than nothing I suppose.

  4. Bean Stalk says:

    This company is good as bust. Thanks for the tip

  5. Mr Pithe says:

    Tom, Dr Ali does exist. Maybe some of the followers can enroll for one of his classes here:

    From my understanding Dr Ali is not willing to change the report according to what JE wants (?!) They have been in dispute over this for some time so hence the massive 2 year delay.

  6. RealTomWinnifrith says:

    I have followed the Sefton story with some interest and started doing some digging on your claims. You say that “I have never been either long or short of Sefton” and that “I only stumbled across this company in August (or was it July?)”. Interesting.

    That is obviously not true. I think its about time to expose the truth.

  7. I suspect that you are not Real at all.

    For the record: I have never written about Sefton until the summer not bought or sold a share not sold them a stand at an investor show> I am aware that folks in other parts of the firm that I used to work for had dealings with SER but I was not involved in either operation and so had no contact with them. My first contact was when writing last summer. I have never been long or short.

    I hope that clarifies the matter for you


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