22nd Sep 2006 07:00
Sefton Resources Inc22 September 2006 SEFTON RESOURCES, INC. ("Sefton" or "The Company") Interim results for the six months to 30 June 2006 HIGHLIGHTS o Sefton records its first interim profito Sales up 306% at $1.5mo Profit of $175,647 (loss $1,008,626)o Plans in hand for at least five new wells Chairman, Jim Ellerton reports that 'the company is financing operations fromcash flow while discussing a line of credit with several banking institutions. Aline of credit will allow the company to accelerate the development and expandits assets, in California and Kansas'. Chairman's Statement:I am pleased to report the first profit statement of the Company: Oil and Gas Sales for the six-month period ending 30 June 2006 were $1,508,114 a306% increase over the comparable period last year ($371,414), but slightly downfrom the second half of last year due to the repair work at Tapia and Eurekathat was reported in my 1 August 2006 statement. Production costs increased 74% to $356,104 ($204,947), primarily as a result ofthe aforementioned repair work. General and administrative costs decreased 4% to$785,689 ($815,994). Overall costs and expenses decreased 3% to $1,332,467($1,380,040), despite a $78,463 non-cash interest expense related to an equityconversion option in a loan note. These resulted in a profit of $175,647 for thesix-month period, a 118% increase over the loss of $1,008,626 for the comparableperiod last year. On the balance sheet, the current assets exceed the current liabilities. Totalliabilities were reduced and shareholders' equity increased significantly forthe period ending 30 June 2006 relative to the comparative period in 2005. The sale of TEG Oil & Gas Canada, Inc. closed June 30, 2006 with an effectivedate of May 1, 2006 and the Company realized approximately $400,000 USD cash andat the same time increased its holdings to 100% of the shares in TEGMidContinent, Inc., which contain significant Eastern Kansas landholdings. Following the sale of TEG Canada, which accounted for 30-40 BOPD and thesuccessful repair work at Tapia and Eureka, production has now settled down at140 BOPD at Tapia and 15-20 BOPD at Eureka. Plans are in hand for at least fivenew wells, but these are subject to rig availability, which remains very tight. Subsequent to June 30, 2006, an initial ruling on the remaining litigation toclaim damages against the drilling company following the 2002 Blowout wentagainst the Company and we are awaiting an analysis of the Ruling and optionsavailable to the Company from our lawyers. The Company's balance sheet includesthe contingent liability ($178,000) from the remaining litigation and as such,there will be no impact to the Company's financials, if we choose to settle thislitigation. Currently the Company is financing Operations from Cash flow, while discussing aline of credit with several banking institutions. A line of credit will allowthe Company to accelerate the development and expand its assets in Californiaand Kansas. Operations reports for the Company's two wholly owned subsidiaries follow. Jim EllertonChairman and Chief Executive OfficerSeptember 22, 2006 Interim Operations Report on TEG Oil & Gas USA, Inc. TAPIA OIL FIELD TEG USA concentrated on facilities improvements during the first half of 2006.The better than expected results from the 2005 drilling program put a strain onthe old tank and separation equipment at the Tapia Oil Field. Capitalexpenditures could not be justified, however, without first proving theviability of new wells in the field. The 2006 program for upgrading thefacilities includes repair and or replacement of three tanks at the Lackiefacility, four tanks at the Hartje facility, Installation of a vapor recoveryand gas flare system, upgrade of tank piping at the Yule tank facility andrealignment of the produced water separation and injection system. Through June30, 2006 TEG USA had completed 80% of the Lackie facility Tank reconstruction,100% of the Yule tank piping improvements, Reconstruction of the Hartje/LackieProduced Water Tank, and 100% of the Tapia Vapor Recovery/Gas Flare System. Weare on schedule for completing the proposed tasks by year-end. Once completed,the tank work will add an additional 2,000 barrels of storage capacity at Tapiaand significantly greater daily throughput capacity. Production at Tapia for the first six months of the year averaged 130 BOPDdespite key wells being down for mechanical reasons for over two months whilewaiting for a well servicing rig. The increased activity in the California oilmarket has made service rigs especially scarce. While the service rig was at thefield, TEG conducted an acid stimulation of one well that had historically lowfluid production rates. The acid stimulation resulted in an increase from 1 BOPDto approximately 10 BOPD. Additionally TEG took the opportunity to replace pumpsin all of the key wells so not to risk pump failures in wells after the rig wasreleased and no longer available. Once all service rig work was completed, theproduction for the field returned to expected production rates of approximately150 BOPD. TEG USA revenues averaged $251,352/mo. for the January through June 2006 timeperiod, dominantly from oil produced at Tapia. This facilitated the payout ofthe 2005 five well drilling program as well as funding 2006 facilities projects. TEG has received approval for five of the nine wells from the CaliforniaDivision of Oil, Gas and Geothermal Resources. Approval of another four wells,which will be drilled on Federal minerals parcels, are pending surface ownersign-off (Los Angeles County) before final approval is granted by the U.S.Bureau of Land Management. TEG is now in the process of securing a drilling rigto begin the next round of drilling at Tapia. Rig availability, however,continues to be very tight. EUREKA CANYON OIL FIELD TEG has been working with W.L. Gore and Associates, Inc. at Eureka Canyon inpreparation for a geochemical reconnaissance-mapping program. Gore Geochemicalsurveys have shown great success worldwide in the identification of prospectareas and in reducing drilling risk within existing mapped areas. The area underminerals lease to TEG comprises just over 1,500 acres in rugged terrain. Thisrugged terrain and steeply dipping geology makes acquisition of standardsubsurface seismic data a challenge. TEG currently produces oil from about 40acres within this property. We anticipate that the survey will provide TEG withnew areas to concentrate exploitation efforts and also add support for twopossible infill-drilling locations identified by production mapping of the oilproducing area. This program is on track for 3rd Quarter 2006 implementation. EVENTS SUBSEQUENT TO JUNE 30, 2006 Since the close of the 2nd Quarter TEG has signed a formal contract for serviceswith W.L.Gore and is at this time in the process of collecting the fieldgeochemical samples at Eureka Canyon. Once collected, the samples will beanalyzed and compared to samples from similar, known oil producing areas as wellas non-oil-producing areas for calibration. A prospect map will then begenerated for the area. TEG USA took the opportunity to conduct pump changes and well clean outs duringlate July and early August at Eureka Canyon while a service rig was available.The work resulted in restoring production from less than 10 BOPD toapproximately 20 BOPD. TEG has continued to upgrade the facilities at Tapia and has received deliveryof new tank panels for repair of the two 1,000 bbl Hartje stock tanks. We havealso received bids on tank insulation and heating equipment that will facilitatebetter oil separation processing during the cold winter months. All Lackie tanksare reconstructed and tank piping is now being completed. Harry P, Barnum, P.G., R.E.A.President / Managing DirectorTEG Oil & Gas USA, Inc. Interim Operations Report for TEG MidContinent, Inc. At the start of 2006, the company had improved its asset base and had positioneditself for future development and growth. During the first six months of theyear TEG has moved cautiously; selectively focusing on prime acreage in itslease acquisition program and undertaking geological and engineering studiesprior to initiating its drilling program. This less aggressive approach allowsothers in the industry to perfect drilling and completion technologies unique tothe Forest City Basin that TEG can utilized once drilling commences. Meanwhilethe company's leasehold is situated in geologically prime areas and as indicatedbelow, industry drilling activity and successes supports TEG's projectdevelopment decisions and its leasehold value has increased. These favorablefactors give TEG the option to undertake its drilling program individually orthrough joint venture.TEG MIDCONTINENT PROJECTS: Leavenworth County We have continued to acquire leases in Leavenworth County, an area which TEGmanagement believes is a very viable project. Leavenworth County has producedalmost 3 million barrels of oil and in excess of 18 BCF of gas. There remainsconsiderable, undrilled, geologically sound prospects in addition to theunconvential Coalbed Methane potential Believing this, TEG is undertaking the following two-phase approach to projectdevelopment:Lease AcquisitionDuring the "Due diligence" phase of the attempted acquisition it was discoveredthat considerable un-leased/open acreage was situated adjacent to existingwells. The Company initiated a lease acquisition program and today TEG hasincreased its total acreage holdings to over 7500 acres acquired at competitivelease bonus costs. Joint Venture DevelopmentCurrently TEG is in contract negotiations with several pipeline Operators thatprovide gas gathering system infrastructure or market access. One Operator hasimmediate access to the Southern Star system and is situated such that accesscould be achieved via a previous "tap" that needs only equipment upgrades tostart deliveries. This pipeline could provide immediate market access("hook-up") for several wells. The contract negotiations with these operatorsshould be concluded during the fourth quarter of 2006. Anderson / Franklin County The Anderson and Franklin County leasehold is considerable, has close proximityto pipelines and is supported by extensive geology and coalbed methaneproduction within the Forest City Basin, in the immediate area of TEG's project. At the end of June TEG had leased in excess of 28,000 acres. The Leases wereacquired at competitive prices. All leases are for a minimum of five (5) years,with most having an option to extend for an additional five (5) years. Theacreage is situated such that TEG has coverage on both conventional oil and gaspossibilities and on the thicker, potentially more productive, Bevier andRiverton coal deposits. The existence of abandoned or temporarily abandonedwell-bores on the leased acreage will provide TEG with the opportunity to testvarious potentially productive zones The Forest City Basin/Bourbon Arch CBM development play is moving toward TEG'sacreage and supports TEG's drilling optimism or ability to attract joint venturepartners. This statement is based upon project development by Petrol on the West(19 wells recently completed, and 12 additional wells permitted, three that areimmediate offsets to TEG acreage). Petrol is selling gas into the Enbridgesystem that crosses TEG acreage. Heartland has initiated four pilot projects inan area east of TEG's acreage and has successfully completed 24 wells. Heartlandis selling gas into the Enbridge system. The opportunities in Kansas are extensive. In order to better quantify theopportunities, TEG has contracted Sure Engineering to consolidate and expandavailable data into a TEG Kansas Operational Study, upon completion of thatreport TEG will determine its best courses of action relative to both projects. Bruce MackayPresidentTEG MidContinent, Inc. Sefton Resources Inc.Consolidated Statements of Operations and Comprehensive Income (Loss) For the six months For the year ended December ended June 30 31 2005 2006 2005 (audited) (unaudited) (unaudited)Revenues:Oil and gas sales $1,508,114 $371,414 $2,165,410 Cost and Expenses:Oil and gas production 356,104 204,947 469,196Depletion and Deprecation 82,323 98,013 199,714General andadministrative 785,689 815,994 1,885,406Loss on fair valueof guarantee - 266,735 266,735 ----------- ---------- ------------- 1,224,116 1,385,689 2,821,051 ----------- ---------- -------------Income (Loss) fromOperations 283,998 (1,014,275) (655,641) =========== ========== ============= Other Income(expense):Interest income 6,231 13,911 15,421Interest expense(Note 10) (114,582) (8,262) (84,193)Foreign currencytransaction exp - - (8,051) ----------- ---------- ------------- (108,351) 5,649 (76,823) ----------- ---------- -------------Net Income (Loss) $175,647 ($1,008,626) ($732,464) ----------- ---------- ------------- Basic and dilutedgain (loss) percommon share: 0.0001 (0.001) (0.0005) Basic and DilutedWeighted averageshares outstanding 1,580,396,376 1,493,369,500 1,493,369,500 =========== ========== ============= Sefton Resources, Inc.Consolidated Balance Sheets ---------- ---------- -------------Assets June 30 June 30 December 31 2006 2005 2005 (unaudited) (unaudited) (audited) ---------- ---------- -------------Current Assets: ---------- ---------- -------------Cash 148,350 $516,231 $126,109Accounts receivable 578,223 140,906 347,710Other receivables - related party 42,058 88,286 22,517Prepaid expenses and other assets 31,223 19,062 47,287 ---------- ---------- -------------Total current assets 799,854 764,485 543,623 Lease Acquisition-IntangibleCanada Sale (Note 9) 1,234,484 Oil and gas properties fullcost method, net 7,386,719 7,336,000 7,524,772Equipment and vehicles, net 58,883 58,903 50,126 ---------- ---------- ------------- Total assets 9,479,940 $8,159,388 $8,118,521 ========== ========== ============= Liabilities and StockholdersEquityCurrent Liabilities: ---------- ---------- -------------Accounts payable 536,326 $1,710,036 $774,276Accrued expenses 8,847 29,556 23,685Accrued expenses - related parties 78,895 - 79,058Note payable, current portion - - 18,000 ---------- ---------- -------------Total current liabilities 624,068 1,739,592 895,019 Notes payable: ---------- ---------- -------------Note payable 910,100 533,749 653,227Note payable - related party 270,160 - 270,160 ---------- ---------- ------------- 1,180,260 533,749 923,387Less discount (78,463) - (119,000) ---------- ---------- -------------Total notes payable 1,101,797 533,749 804,387 Asset Retirement Obligation 162,167 292,612 163,111 ---------- ---------- -------------Total Liabilities 1,888,032 2,032,204 1,862,517 ---------- ---------- ------------- Minority interest - 407,865 722,072 ---------- ---------- ------------- Stockholders Equity: ---------- ---------- -------------Common stock, no par value, 3,000,000,000 sharesauthorised, 1,629,158,744 (June 30, 2006),1,493,365,500 (June 30, 2005)and 1,493,369,500 (December31, 2005) shares issued andoutstanding 12,026,845 10,974,689 11,079,853Stock subscription receivable (30,047) (30,047) (30,047)Treasury stock (58,602) (58,602) (58,602)Accumulated (deficit) (4,345,636) (5,797,961) (5,521,799)Accumulated othercomprehensive income/loss (652) 97,491 64,527 ---------- ---------- -------------Total stockholder's equity 7,591,908 5,185,570 5,533,932 ---------- ---------- ------------- Total liabilities andstockholders equity 9,479,940 $8,159,388 $8,118,521 ========== ========== ============= Sefton Resources, Inc.Consolidated Statements of Cash Flows For the six months ended For the year June 30 ended December 31, ----------- ----------- ------------- 2006 2005 2005 (unaudited) (unaudited) (audited) ----------- ----------- -------------Cash flows from operating activities: Net gain (loss) $175,647 $(1,008,626) $(732,464)Adjustments to reconcile net gain(loss) to net cash (used in) operating ----------- ----------- -------------activitiesDepletion and depreciation 82,323 98,013 199,713Loss on fair value - 266,735 266,735Stock issued for services - - -Stock options issued for services - - -Amortisation of discount onconvertible notes payable 78,463 - 38,000Forgiveness ofaccounts receivable to related parties - - 148,000Changes in operating assets and - - -liabilitiesAccounts receivable (309,324) (81,706) (288,510)Prepaid expenses 13,507 22,852 (5,373)Other assets - related party (19,541) 69,687 (12,544)Accounts payable 202,466 1,271,654 335,894Accrued expenses - related party 19,269 (46,871) 32,187Accrued expenses 7,368 26,859 20,988 ----------- ----------- -------------Net cash (used)provided by operating activities 250,178 618,597 2,626 ----------- ----------- ------------- Cash flows from investing activities: ----------- ----------- -------------Proceeds from sale of oil and gas - - -propertiesPurchase of oil andgas properties (382,766) (2,880,040) (3,314,760)Purchase of property and equipment (26,249) (25,653) (25,951)Establishment ofEmployee Benefit Pool - (325,337) -Acquisition of minority interestCanada (36,484) - - ----------- ----------- -------------Net cash (used) byinvesting activities (445,499) (3,231,030) (3,340,711) ----------- ----------- ------------- Cash flows from financing activities: ----------- ----------- -------------Proceeds from sale ofminority interest in subsidiary - - 722,071Proceeds from notespayable - related party - - 270,160Payments on notes payable - related - - -partyProceeds from notes payable 242,005 325,337 90,820Payments on notes payable (41,059) (140,142) (93,484)Proceeds from sale of common stock - 459,701 -Proceeds on private placement of common stock 42,305 - - ----------- ----------- -------------Net cash provided byfinancing activities 243,251 644,896 989,567 ----------- ----------- ------------- Effect of exchangerate changes on cash (25,689) (1,745) (10,886) ----------- ----------- ------------- Net increase(decrease) in cash andcash equivalents 22,241 (1,969,282) (2,359,404) Cash and cashequivalents, beginning of year 126,109 2,485,513 2,485,513 ----------- ----------- ------------- Cash and cash equivalents, end ofperiod 148,350 $516,231 $126,109 =========== =========== ============= SEFTON RESOURCES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements June 30, 2006 1. The financial results for the half-year to 30 June 2006 and the comparativesto 30 June 2005 are both unaudited. The financial information for the year to 31December 2005 has been extracted from the full audited financial statements. Thefinancial statements presented in the 30 June 2006 interim statement incorporateby reference the full audit report that is available in the Company's annualreport from 31 December 31 2005. 2. The June 30, 2006 statements do not include the Canadian Balance sheet itemsin consolidation but do include the Canadian operations as a result of the saleof TEG Oil & Gas Canada Inc. (Note 7). All other financial information includedin this document has been prepared on a consistent basis and using the sameaccounting policies as the audited financial statements for the year to 31December 2005 and has been approved by the Board of Directors of the Company. 3. The reporting currency of the Company is the U.S. dollar. The functionalcurrency of the Company's Canadian subsidiary was the Canadian dollar.Translation into U.S. dollars is performed for assets and liabilities at theexchange rate as of the balance sheet date. Income and expense accounts aretranslated at average exchange rates for the reporting period. Adjustmentsresulting from the translation are reflected as a separate component of othercomprehensive income. Transaction gains and losses that arise from exchange ratefluctuations on transactions denominated in a currency other than the functionalcurrency are included in the results of operations as incurred. 4. On April 1, 2005, Sefton Resources, Inc. sold TEG MidContinent, Inc. to TEGOil and Gas, Canada, Inc. (TEG Canada) for $500,000 (United States Dollars),2,000,000 shares of the common stock of TEG Canada and the assumption of allfuture costs and expenses related to TEG MidContinent, Inc. 5. In May 2005, the Board of Directors of TEG Canada approved the issuance ofup to 6,000,000 shares of TEG Canada at a price of $0.25 (Canadian Dollars) pershare. As of June 30, 2005 subscriptions for 3,114,098 shares of this privateplacement had been signed, and the Company had received cash of $459,701. 6. On February 15, 2006 the Sefton Board of Directors authorized theacquisition of shares in TEG Oil & Gas Canada, Inc. owned by minority interests.This was completed with an offer to Canadian shareholders an exchange of Seftonshares for their shares owned in TEG Oil & Gas Canada, Inc. or repayment oforiginal investment As of March 31, 2006, TEG Oil & Gas Canada became a 100%wholly owned subsidiary of Sefton Resources, Inc. 7. On June 30, 2006 TEG Oil & Gas Canada Inc. was sold by Sefton Resources,Inc.for $450,000.00 (Canadian) and 100% of the shares of TEG MidContinent, Inc.The effective date of sale was May 1, 2006 8. As discussed in Note 7, TEG Oil & Gas Canada was sold effective May 1, 2006and oil and gas operations costs have been included in the statements. Canadianoil and gas production costs consist of actual figures through April 30, 2006 9. The sale of TEG Oil & Gas Canada, Inc. for cash and 100% of the shares inTEG MidContinent, Inc. has resulted in the reporting of additional intangiblelease value derived from TEG Canada's ownership of TEG MidContinent, Inc. TheAuditors will review this transaction at year-end to ensure the accounting is inaccordance with US GAAP. 10. In accordance with Emerging Issues Task Force Issue No.98 ("EITF 98-5"),"Accounting for Convertible Securities with Beneficial Conversion Features orContingently Adjustable Conversion Ratios" and EITF Issue No. 00-27, Applicationof Issue No 98-5 to Certain Convertible Instruments, the Company recognized theadvantageous value of conversion rights attached to convertible debt as adiscount to the related debt and an addition to capital in excess of par value.As the market price exceeded the conversion price a beneficial conversionfeature of $157,000 was recorded at issuance. Amortization of the discount of$78,463 is included in interest expense for the period ended June 30, 2006. 11. Copies of the Interim Statement will be sent to shareholders in October2006. Copies of the Interim Statement will be available from the CompanySecretary, Pinsent Masons Secretarial Services Limited, 30 Aylesbury Street,London EC1R 0ER. For more information, please contact:Jim Ellerton, Chairman and CEO Tel: +1 303 759 2700 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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