By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 12 April 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Readers will know that I'm far from convinced at the buy case for AIM-listed Frontera (FRR), shares in which have again been on the rampage after what looks like a rampety-ramp RNS yesterday. The ShareProphets RNS Translation Service thought it should chip in.
The thing with Frontera is that it has been around for years and years, racked up accumulated losses of $467 million at the last count (last year’s interims) when it also reported net assets of MINUS $65 million and net current assets of MINUS $57 million. Since that period end (30 June 2016) it has issued $4 million of shares to “service providers” and raised $0.545 million from a Standby Equity Distribution Agreement (SEDA) as announced on 1 August last year, a further $0.527 million of SEDA funding announced on 26 September, £0.383 million of SEDA announced 1 November, another £0.188 million announced 24 November and pushed out $30 million of loans to 2020.
I make that a balance sheet improvement of heading for $6 million in terms of net assets and around $36 million in net current assets. In other words both are still in the red even before whatever spending went on in the second half of 2016.
Against that lot, the half-year cashflow statement showed an outflow before fundraisings of about $1.6 million which saw the company close the period with just $50,811 of cash. Perhaps that explains why “service providers” took shares instead of fees – not that they’ll be disappointed (if they’ve held on) given the massive rise in the company’s share price.
But with full year accounts to be audited and released by the end of June that all-important Going Concern statement might be exercising a few minds (and last year triggered an emphasis of matter from auditor PWC). So, in the wake of the recent delays in getting its latest Georgian drilling campaign up and running (the latest of which apparently caused by the company being in talks about joint operations or a farm out) we kind of reckon that Frontera needs to rattle the tin. The ShareProphets RNS Translation Service (with the original RNS text in bold) likes nothing better than to help….
Frontera Resources Files Notice of Feasibility of Commercial Production In Georgia
Shares for sale, shares for sale!!
Houston, Texas U.S.A. - 11 April 2017
Never mind that we’re listed on AIM, have operations in Georgia and incorporated in the Cayman Islands, we’re completely legit because Texas has lots of oil.
Frontera Resources Corporation (AIM: FRR), an independent oil and gas exploration and production company, is pleased to announce that Frontera Resources Georgia Corporation, a fully-owned subsidiary of the Company, filed a Notice of Feasibility of Commercial Production ("The Notice") related to its operations in the country of Georgia.
Shares for sale, shares for sale, roll up, roll up!
The Notice relates to the Company's ongoing work within its Block 12 license area…..
the planned operations part of which have been delayed due to the kit not arriving and then delayed some more because we are in talks regarding a possible farm-out or joint operation arrangement. But it really is “ongoing”, honest.…
…and has been filed with the Georgian state-owned oil and gas company in accordance with the terms and provisions of the Company's production sharing agreement…..
So we think that commercial production is feasible….shares for sale, by the way….
…This is an important milestone for Frontera, as the Notice is primarily associated with operations targeting the substantial oil bearing Eldari Formation and other related geologic targets.
Roll up, roll up, shares for sale, shares for sale….
Frontera's work to date has produced notable results…..
…including accumulated losses of an eye-watering $467 million by a company with a current market capitalisation of just £30 million (source: ADVFN) – but we might have a cunning plan to get the market capitalisation higher…..shares for sale, shares for sale…..
….demonstrating that analysis of long term cumulative production rates from key wells have now provided the basis for reservoir performance modeling. This supports the conclusion that commercial production associated with the extensively distributed Eldari Formation is feasible…..
Yup, feasible but not certain.
… These results and conclusions have been achieved through successful evolution of completion designs; advancement of integrated technical analysis of associated reservoir performance, and; related geologic, geophysical and petrophysical studies.
That all sounds terribly clever – which of course we are. Did we mention that we might have some shares for sale?
Based on the Company's recent filing of the Notice, technical work will now continue in order to establish feasibility of commercial production across all of Block 12 related to the Eldari Formation and its related geologic targets.
…if we ever get around to those planned operations we keep not getting operational.
The Eldari Formation and other related targets are estimated to contain more than 1 billion barrels of original oil in place ("OOIP") as independently assessed for the Company by Netherland, Sewell & Associates ("NSA").
You have heard of NSA, haven’t you? By the way, do you know the difference between oil that is “in place” as opposed to “recoverable”? But trust us: it’s feasible and we're in talks for a farm-out or joint operations deal. Quite whether that comes to anything and even then whether it might get anywhere near filling the black hole in our balance sheet is another matter. But we have got shares for sale…..
Steve C. Nicandros, Chairman and Chief Executive Officer, commented:
"This important Notice represents the results of our extensive historical investment and associated technical work in Block 12. We have long believed in the giant potential associated with the Eldari Formation and our recently concluded technical analysis has enabled us to validate and reach this important milestone.
“This important Notice represents a great opportunity for us to raise a load more dosh so as to continue to pay the extremely reasonable consulting fees paid to ‘a director of the company’ of $252,083 in 2015, a bit more in 2014 and…well, we’ll get around to telling you how much last year by 30 June. You gotta pay for talent….”
Like the giant onshore plays that have successfully been uncovered with similar technical efforts in our home state of Texas over the past decade, uncovering the extensive potential associated with the Eldari Formation has been very exciting. In this context, our work represents yet another example of how such dedicated technological efforts can bring material, transformational results and ultimately make a meaningful contribution to Georgia's energy independence."
There’s loads of oil in Texas, just oodles of it, which is why our offices are there. It's just that our operations aren't, but don't you worry about that minor detail. And we just love that word “potential”…..like our potential for raising cash so as to keep the lights on a bit longer.
Needless to say after years of disappointment and a godawful record of accumulated losses it is hard to reach any other conclusion than the shares being a SELL – especially at the current elevated price which looks to mark the triumph of hope over experience.
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