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SEFTON RESOURCES INC - UNDERRATED OIL PRODUCER (SER)     

ptholden - 04 Aug 2006 19:53


???

Sefton Resources is an independent AIM quoted Oil and Gas company operating in the US. The companys principal current assets are two producing oilfields in California (Tapia Canyon Field and Eureka Canyon Field); it is also in the process of buying up prospective coal bed methane acreage (CBM) in Kansas.

Update from July 2007 AGM

Finance

I revealed in my annual statement that discussions were well advanced with
Banking institutions. The final phase of the agreement with a suitable bank
without complex and restrictive terms is now very near. This is weeks away
rather than months.

Oil

Oil production at Tapia has averaged 4,100 BO during the last five months. Which
is in line with last years levels. Once this finance is in place we will be able
to move ahead with drilling.

Drilling

We have stayed close to drilling contractors and we are ready to move forward
quickly when this finance is available.

Steam generation

The equipment is now in place at Tapia. Preparation time is needed to connect
the equipment and carry out the necessary trials required to get the main work
started. We anticipate this steaming will start in the next couple of months. If
successful a significant amount of oil resources will move into the Proven
Producing Reserves category.

Joint Ventures

Discussions continue with a number of interested parties to develop our Anderson
counties gas assets.

New finance team

A new CFO has been appointed with good knowledge and experience of the oil
industry. A new assistant to undertake all the daily needs has also been
appointed.


SWOT ANALYSIS

STRENGTHS:

Sefton has two oil fields, both producing. One is already profitable, and the other is breaking even. This should generate good cashflow for the company over the medium term.
Sefton owns 100% of both its major oil interests and is now demerging its non-controlled oil interests in order to concentrate on those where it has full control (Sefton has recently disposed of its Canadian assets for CDN450k cash).
Sefton is establishing a track record of using modern extraction technologies to improve the efficiency of its fields.

WEAKNESSES:

Sefton has suffered from a number of one-off factors. While these were out of the companys control the problems it has faced since 2002 have held back development and taken up management time. Investor disenchantment may account for the current low rating.

OPPORTUNITIES:

Sefton has acquired acreage for CBM (coal bed methane) in Kansas. CBM gas production is a thriving market and Sefton believes it has acquired the acreage at advantageous prices. While this is a longer term prospect it is an exciting one and could eventually eclipse the oil interests.
There are a number of other fields in the Ventura Basin and more generally in California as a whole that Sefton may look to target now its cash flows are stronger.
Eureka is a semi-exploration play which may contain further upside. This cannot yet be evaluated.
At this valuation the company may prove an attractive target for a larger player.

THREATS

Owing to its geographical location the company continues to be exposed to the threat of bush fires, canyon floods and geological interruption (earthquake risk). Sefton is taking steps to mitigate this risk by investing in Kansas and although Forest Basin area is susceptible to tornados - gas facilities have a minimal surface footprint.

LINKS:

Sefton Resources Web Site

Quarterly Update (Mar 08)

Operations Update Dated 14 January 2008

Hardman Report

Final Results - Year Ended 31 Dec 2006

2007 AGM & Update

In The News - Oil Barrel Dated 31 January 2007

Daily California Crude Oil Prices (MIDWAY SUNSET 13)

Chart.aspx?Provider=EODIntra&Code=SER&Si

john50 - 29 Nov 2007 18:33 - 1361 of 2350

349,551 buys v 266,250 sells and 2 x 100k rollovers

myownmoney - 30 Nov 2007 12:55 - 1362 of 2350

WHY is there all these sells and no buys?
Does someone know something?.......

SECRUOSER - 30 Nov 2007 13:01 - 1363 of 2350

Yes, buyers know that there are still little muppets willing to give their tiny holdings back to the MM's at the drop of a hat (or a shareprice), so quite wisely bide their time and attempt to buy on the dips.

The sellers I would suspect know very little indeed about the stock they're selling, which is probably about the same amount they knew when they bought it.

myownmoney - 30 Nov 2007 13:41 - 1364 of 2350

Thanks for that Secruoser, I'm only a tiddler but I have hung on to my holding through thick and thin.
I am sure this company has got more potential, they have not done anything with Kansas yet...

SECRUOSER - 30 Nov 2007 13:56 - 1365 of 2350

Kansas is there in the background which backs up the asset value and longer-term potential but there's still a hell of a lot of value to be created from the Tapia field in the short-medium term. Have you read the report by Hardman & Co (the recent one)?

I think they will concentrate on Tapia alone for the next 6 months but a suprise JV could come for Kansas. I would suspect Sefton will need something to bring to the table though (ie cash from Tapia cash-cow) and a better knowledge of the resource there (through some test drilling) for a decent JV unless they are happy to give away (sell) a large % for a free carry.

And then of course we have Eureka, most of which is yet to be proved up. Cashflow from the Tapia cash-cow together with the credit line if/when appropriate will allow the development of both these assets to begin in ernest.

driver - 30 Nov 2007 16:02 - 1366 of 2350

SECRUOSER
I agree to sell at this point is very short sighted SER have only drilled their first hole of many, a possible eighteen 2008 will see the drilling continuing and the sp will reflect this every time we get a news update all the up to 30p + then we still have (CBM) in Kansas to look forward to.

SECRUOSER - 30 Nov 2007 16:03 - 1367 of 2350

Plus, don't forget the steaming!

driver - 30 Nov 2007 16:04 - 1368 of 2350

And the steaming!!!!!!!

halifax - 04 Dec 2007 16:32 - 1369 of 2350

News due tomorrow?

driver - 04 Dec 2007 16:51 - 1370 of 2350

We may not get new tomorrow they have already told us what they are doing.

Hookup will commence as soon as the drill rig equipment is cleared from the pad. TEG
plans to complete this work and commence production from Hartje #17 by the middle of next week.

capetown - 05 Dec 2007 13:03 - 1371 of 2350

350k buy,few more of those might get us moving

capetown - 05 Dec 2007 13:04 - 1372 of 2350

And another one!!!

SECRUOSER - 05 Dec 2007 13:31 - 1373 of 2350

Its a rollover!!!

capetown - 05 Dec 2007 13:34 - 1374 of 2350

That explains why the sp has not even blipped!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

SECRUOSER - 06 Dec 2007 10:09 - 1375 of 2350

The Excellent Economics of the 2008 Drilling Programme
-----------------------------------------------------

The economics of the drilling programme are simple and very positive - in summary each well can pay off the debt taken to drill it in around 1 year which is a very good payback period indeed. In reality the debt will not be paid back as quickly as possible but the profits will be used to further grow the company.

Here are two cases which both use a very conservative oil price. The second uses an exaggerated drilling cost and reduced flowrate. Note the figures below are per well drilled. These figures also assume that current production levels (excluding the 2 wells just drilled) just cover costs, and hence the company is at break-even prior to the start of the drilling programme. But it should be noted that the company reported a profit of just under $200k for H1 2007.

Assumptions #1:
Each well costs $500k. Each well produces 40bpd of oil and a net cashflow of $50/barrel after variable costs using $70/barrel WTI, $10 discount for API and $10 variable costs. Interest on debt is 8%. Fixed costs are covered by existing production.

Interest on debt at 8% per annum is $40k per well and this is covered by 2.2bpd of oil production. The remaining 37.8bpd provides $690k per year which can go to pay off the debt or as profit. Payback period is 0.72 years.

Assumptions #2:
Each well costs $750k. Each well produces 30bpd of oil and $50/barrel net cashflow.

Interest is $60k per well, covered by 3.3bpd. The remaining 26.7bpd provides $488k/year profit. Payback period is 1.5 years.

With the current WTI price of $88 the profit figures would be around 50% more.

The exact scheduling of the drilling plan going forward is unknown to us at this time but I would say based on the timings for the current 2 wells drilled they could realistically get between 9 and 18 wells drilled by the end of 2008.

Currently they have taken an average of 40 days per well, which gives the 9, but this was with a very long delay caused by the previous operator which I think can be assumed to be at the upper end of likely delays and timings going forward. 18 assumes the current delays and timings are around double the expected average, which may well be over-optimistic, but this gives an upper bound.

In summary, even if all future wells followed the same delayed timings we have endured in these first two, 9 further wells are clearly very easily achievable in 2008.

The point is that they are using debt to create a cash cow, each element of which can quite easily pay back the whole debt used to create it in under 1 year. Can you find another business case that looks that good?

SECRUOSER - 07 Dec 2007 10:33 - 1376 of 2350

Any thoughts?

SECRUOSER - 07 Dec 2007 11:12 - 1377 of 2350

With drilling news expected by early next week which should further prove the viability of Sefton's plan to rapidly turn Tapia into a highly profitable cash cow, this would seem an opportune chance to buy in low imo.

Unfortunately only 15k available at 6.6p!

cynic - 07 Dec 2007 11:19 - 1378 of 2350

this is always the trouble with mini-minnows

SECRUOSER - 07 Dec 2007 11:23 - 1379 of 2350

I'm sure there's a few more available at 6.75-7p if you ask nicely cynic.

cynic - 07 Dec 2007 11:31 - 1380 of 2350

as i have said before, of the mini-minnows this looks lioke one of the better ones, but stock is def not for me as far far too small ...... i have plenty of other ways of losing money!
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