Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
In January 2020, UKOG held a General Meeting, under the Special Business of which it sought shareholder approval to issue £300,000 of 0.01p shares. That was an extra 3bn shares. In the latest results, since January 2020 around £7.7m of shares have been allocated via 3 placings, increasing shares in issue by over 4.1bn. So, UKOG is maxed out in terms of further placings without prior shareholder approval. As sure as eggs is eggs, UKOG WILL place more shares in future. BUT NOT without prior shareholder approval. The next GM is on 12 May 2021, at which point no doubt there will be a resolution to further increase shares in issue. So, any placing will occur AFTER this date.
Isn’t this all transparently obvious from the RNSs?
If spudding in Turkey is expected by end May, I’d figure a placing will arrive between the GM and end May, to give the faceless ‘institutional’ investor(s) the opportunity to flip the shares for profit. Why? A failed first drill in Turkey, and a collapse of the share price, would make it pretty much impossible to raise sufficient new equity to continue operating for another year, even with 12 May approval in place.
The Principal-Agent Problem (PAP) is familiar to us all.
We take out insurance against risky outcomes. To ensure clients (agents) do not abuse their policies by making frivolous or illegal claims, insurers (principals) require agents to meet the first £x of claims. As there’s no “free-ride” for agents, they act more responsibly, and claims are reduced. Insurance is invalidated when agents act irresponsibly or recklessly or against legal or government advice.
Responsible organisations are insured. But that insurance doesn’t cover them for known reckless and irresponsible behaviour - which manifestly was the case yesterday when 6 Surrey County Council (SCC) councillors, acting as ‘agents’ for Surrey residents, voted against granting planning to UKOG. The “Loxley 6” did so despite being reminded (1) of the articles governing their actions as planning committee members, (2) by their legal and planning teams that there was also no legal reason for refusal, and (3) by their own chair to vote in favour. As such, the Loxley 6 ‘turned rogue’, invalidating any insurance SCC may have had for legal claims. It’s a matter of visual public record, not once now, but twice.
Responsible organisations with known employees (agents) who turn rogue like this and act in ways that leave them (principals) open to substantial legal claims and costs would have removed them. The Loxley 6 simply should not be doing a job they are evidently unfit for, in the sense of being willing and able to work within the law and principles governing their work.
Of course, the reason for yesterday’s outcome was that the incentive structure for the “Loxley 6” was wrong. Like the insurance frauds highlighted in the BBC ‘Claimed and Shamed’, these rogue councillors felt they could scam the system - refuse permission, and that somebody else (SCC council tax payers) would cover appeal costs they were warned during the meeting would be very substantial. Like with the insurance policies we take out, they needed to be incentivised to behave responsibly. If SCC was exposed to costs of, eg, £500,000, then these 6 members should have been on the hook for equal shares of this sum, not council tax payers. This would have focused their minds, and ensured they followed the advice of their lawyers and planners.
But, as I’ve said, such a draconian incentive structure should be unnecessary - simply remove such people (agents) from post before they wreak havoc on the work of the organisation and people they represent (principals), and the wider economy of which that organisation is part.
That goes for our own CEO, “no shares” Stephen Sanderson. Is there even one CEO among the 2,000-odd quoted companies on the London market who would so brazenly issue 10bn shares and not buy even one him/herself? As ‘agent’ for his shareholders (‘principals’), his interests are clearly not aligned, and we have suffered the catastrophic consequences of his reckless and irresponsible behaviour.
A Common Thread
A day of heavy irony.
A common thread links the utterly shambolic actions of planning committee members of Surrey County Council (SCC) with that of the equally shambolic actions of UKOG’s CEO, Stephen Sanderson. It’s called the principal-agent problem.
Put briefly, UKOG shareholders / Surrey council tax payers as principals are represented by people - our CEO / planning committee ‘no’ voters - who simply don’t have “skin in the game” when it comes to the financial consequences of their actions.
So, UKOG’s CEO issues upwards of 10bn new shares to finance the purchase of “assets”, operating activity and ventures that - to date - have yielded virtually no marginal gain, and that he has steered clear of owning. His interests do not align with those of UKOG shareholders.
Similarly, SCC planning committee members voting ‘no’ today won’t bear any financial consequences of a future council loss in the courts at appeal. Instead, council tax payers in Surrey will pick up the tab, with services / jobs cut, and / or higher council tax bills.
The source of failure is the same in both cases: agents with unaligned interests. UKOG’s CEO ignores the weight of objective evidence of his failed tenure in the same way ‘no’ planning committee members today ignored the legal advice they had been given, the opinion of their chairman, and the professional opinion of their planners.
This particular case is a ‘perfect storm’ of two equally useless agents representing principals that will both bear huge costs. UKOG’s shareholders felt the consequence immediately, with the shares plummeting over a third. That means even more shares will need to be issued to raise cash to keep the company running, diluting existing shareholder interests further. Equally, SCC council tax payers will feel their financial pain in 2022 or 2023, when their council is landed with a bill for a successful appeal against its decision today.
The solution to the problem is simple in principle. ‘Principals’ must ensure those who seek to act as their ‘agents’ have interests that are aligned. Otherwise, these agents will be the road to chaos and ruin.
In those ‘no’ voters today, Stephen Sanderson has met his match. Now he knows what his shareholders feel like when he systematically ignores our voices, and the ample evidence of his mismanagement of UKOG.
It’s been a fairly catastrophic 24 hours in the La La Land of UKOG.
First, the failure of Surrey County Council to adhere to its own legal and planning advice and refuse planning permission to Loxley.
Then, this morning, minutes before market opening, Stephen Sanderson, UKOG’s CEO whose body language yesterday was that of a emasculated man, low on confidence, finally reveals the bombshell the lack of tanker movements and every fund raising RNS has hinted at for ages. Despite throwing millions of pounds in acquiring an 86% interest in Horse Hill, productivity of the site has remained around 300 bopd. Even at an oil price of $60 and a 100% controlling interest, that’s only £6.5m a year of gross revenue. His pay is over 5% of net revenues.
On the end of Las Ramblas in Barcelona, a statue of Christopher Columbus points in the direction of the New World. Knowing the failure of the newly branded ‘flagship’ Horse Hill asset, where several wells were supposed to have been drilled in an almost non-stop hive of activity, Sanderson has tried, like Columbus, to point to his own New World of the Isle of Wight and Loxley. Whilst Columbus with royal consent and backing sailed to the New World, Sanderson’s flagship asset will not provide the means to find the riches in these his chosen new lands. He doesn’t have the permission of SCC, nor the backing of existing shareholders, who have been diluted by up to 85% under his 65 odd months in charge.
Sanderson is like a cornered mouse now. He poured millions into Broadford Bridge, with nothing to show. He then rebranded Horse Hill as UKOG’s flagship and poured even more millions into that, with no increase in well productivity. Now, he’s stopped talking of drilling more wells at Horse Hill, and turned attention to Loxley and the Isle of Wight. There will, we know, be a future requirement to pay for recent equipment purchases - two placings for each of those payments, as the 300 bopd will not pay for those. SCC’s actions yesterday mean appealing Loxley will cost UKOG additional hundreds of thousands that net oil revenues from 300 bopd will also never cover, however much he now tries to talk up cost savings.
All these placings against a share price shredded by investors fleeing his ship. Unlike Columbus, very few believe Sanderson can navigate UKOG out of these stormy seas to his New Worlds. If he can, it will only be at the cost of huge further equity fundraising and therefore dilution, costly legal arguments and increasingly severe investor unrest.
I don’t believe his vision or position are tenable. Every course of action is costly in terms of both time and money. It’s abundantly clear all his past decisions have not been worth the risk.
UKOG is like Count Dracula now. It can only survive on investors’ blood, needing ever more of their money. So far, it’s consumed some £60m of their money, but more will clearly be needed.
At some point, though, the sun may cast its bright rays of light ov
Further to my posting (‘Calamitous’) this morning.
This placing is all smoke and mirrors. The debt outstanding to Riverfort / YA of £1.75m will be paid off with the sum of £1.925m.
But lo! It’s replaced with the obligation to pay PW Well Test Ltd £1.65m in 3 tranches, with a minimum cash element of £275,000. Of the rest, £1.375m, £275,000 will definitely be paid in UKOG shares; and £1.1m can be paid in UKOG shares “at UKOG’s sole discretion”.
We know our CEO prefers to pay in shares. So at the current bid price, that’s another 687.5m UKOG shares that will enter circulation over the next year. By June 2021, even with no further fund raising, UKOG will almost certainly have over 11.5bn shares in issue.
Given its cash negative position has driven it to issue almost £60m of shares over the 65 months of the current CEO (note: almost a staggering £1m for every month of his tenure), the more likely scenario is further substantial equity dilution. If £12m is raised over the next year at current share price levels, add around 2bn more shares. Mid 2021, this is a company with perhaps 12bn-13bn shares in issue. By comparison, at end December 2019, it had “just” 6.99bn shares in issue.
The scale of massive destruction of shareholder value is occurring at unbelievable pace. “Averaging down” investors are running up an escalator going down much faster.
In months and years to come, UKOG should become an essential case study for MBA students at business schools on the folly of individual over-reaching, weak corporate governance, and the absolute necessity of aligning the positions and reward of executives with shareholders’ interests.
A CEO who drowns investors with over 9bn additional shares over his 65 month tenure - none of which he himself holds - is a complete red flag to all in the market.
Such a CEO has no business still being associated with the company. Unfortunately, weak corporate governance - both internally from his board and externally from private shareholders because of the rise of nominee accounts - means he’s likely to survive in situ at the forthcoming AGM.
Shambolic.
I recently posted that 44% of the 50 RNSs issued by UKOG since October 2019 have concerned issuing equity. I asked what the next 50 would concern.
All the RNSs since my post have concerned issuing further equity.
Today, we learn money raising under “our glorious leader” Stephen Sanderson has reached almost £60m, diluting original equity by 85%, as shares in issue have grown to 10.83bn. I said on 16 May “the realistic range for additional share issues over the next 2 years is up to 2.5bn shares“. Today, just 19 days later, 2.1bn of these additional shares, or 84%, have been issued.
With the company so cash negative, my forecast will be blown away. Remember, £1.925m of the £4.2m raised today is to pay off Riverfort / YA. That leaves £2.275m for use by the business. Yet only 37 days earlier, on 28 April, UKOG raised £1.275m money for opex purposes. Simply crazy.
The company is devouring new cash at an alarming rate, because production at Horse Hill is woefully inadequate. I’ve said production needs to be around 300,000 barrels of oil per year. It’s more like 70,000 barrels at the moment. Insufficient to cover opex. Insufficient to service the £5.5m Riverfort / YA loan using cash. Insufficient to service any future reserves based loan.
As a metric of how ridiculous and nonsensical things have become, consider this: the £60m raised under the current CEO could have purchased 1.2m barrels of oil at $50 a barrel, or 2.4m barrels at $25 a barrel, compared to the total barrels produced to date of “over 100,000”.
The voracious appetite of UKOG for cash is boundless. The money has been utterly wasted, and will probably continue to be utterly wasted.
It takes all sorts to make a market. From the extremely smart to the extremely stupid, and everyone in between.
So, since October 2019, of the last 50 RNSs issued by UKOG, 22 of them (or 44%) concern issuing more shares (placings, shares for Tellurian, shares for YA/Riverfort). Yet, each and every time there is wailing and grieving, and gnashing of teeth.
Gregory Isaacs once sang “promises are comfort to a fool”. For years, UKOG shareholders have been fed a story worthy of inclusion in Aesop’s fables, of riches beneath the Weald, if only they give this company a little cash. Years later, management incompetence in using over £54m means Mother Earth still holds firmly onto those riches. Many ordinarily sensible people remain transfixed to a spot on the beach, still bewitched by the promise, even as the sea level of UKOG equity inches inexorably higher, engulfing their ‘investments’ with increasing losses / diminishing prospects of returns.
Like any reader of fairy tales knows, salvation lies in breaking the spell. The restoration of reason and common sense. Not “filtered” thinking, ignoring the very real and obvious weaknesses and threats to continuing to hold or buy into UKOG shares, and instead focusing only on the paradise promised, or the lower exit price achieved by “averaging down”. After 64 months of the current CEO, the shares are worth around 30% less. Dilution is over 81%.
Since March I have sold most, but not all, of my UKOG shares. I’m glad I did. Cutting the umbilical cord was liberating. Engaging reason and common sense again, being ready and willing to look at the 2,000 plus other opportunities out there, I’ve rediscovered what long term UKOG holders have forgotten: what it’s like to make money - the reason most of us are involved in the stock market. No more nasty Dickensian workhouse gruel, ladled up the UKOG CEO, of price declines on almost 50% of trading days and unchanged prices on another 20% of trading days, on the back of serially disappointing operational performance.
No, escaped from this character worthy of Dickens most miserable novel, I’ve more than trebled one investment in two months. I’ve more than doubled another in two weeks.
There are some essential truths, of human wisdom, handed down, distilled, clarified, through the ages. “Promises are comfort to a fool” is one of them. Ponzi schemes, email scams...Some people just never learn, never look beyond and behind the curtain, continue to give some a credence which is unchanging and undeserved, even as evidence mounts to the contrary.
To my mind, UKOG is no longer an investment. It’s a gamble, and priced as such by the market. Reason and common sense dictates that the probability of success at this point is far less than the possibility of success.
With negative cash flow - without the internally generated funds to pay the £1.85m debt still remaining - what news do you really expect the next 50 UKOG RNSs to bring?
I recently posted data here about UKOG’s performance under its current CEO. Space limited the clarification I needed to put around them, so here goes.
If there had been no value attributable to the £54.095m he’s raised from new equity, the shares today would be £5.9m / 8,486,797,492 = £0.0007.
The higher price at the time I wrote - £0.0024 - was a near record low and 33% lower than the £0.0036 when he took over. Almost all UKOG investors are underwater in terms of their buy in price.
The increase in market cap from £5.9m to £18.9m is more apparent than real. Share dilution has exceeded 81%, so of the increase of £13m, only 19% or £2.48m, is attributable to the initial equity (1,649,036,509 shares). After inflation, this figure falls to £2.13m - an increase of just 36% after 64 months in charge.
By any conventional measure of shareholder value, UKOG has been an utterly shambolic buy and hold investment.
With over £54m of new money creating just £13m of new value, the tsunami of new equity has swept away “averaging down” investors into the deeper sea of mounting financial losses - some still crying, in The Monkees’ refrain
I'm a believer
Not a trace of doubt in my mind
I'm in love
I'm a believer, I couldn't leave her if I tried
but many more of them now simply just hoping they will be rescued by a Phoenix, ridden by the CEO, that will rise majestically and imperiously from below the tempestuous waves to carry them not just to shore, but above the heads of former investors, to the lush green pastures of financial milk and honey he has created for them in the Weald Basin.
Possibility and probability are two different things. In early life, almost anything is possible, especially to dreamers (“if not you, who? If not now, when?”). Later in life, our dreams become tempered by the cold steel forged from experience and reality, and probability increasingly becomes our divining rod. Personally, the evidence is damning that the current CEO is a busted flush. He’s raised over £54m, then destroyed more of its value more quickly than many states with hyperinflation, avoiding the carnage by not investing in the equity himself. After 64 months, there is a possibility he may still succeed, but the probability of him doing so has, for me, melted away like an early morning mist over the Weald Basin.
For me, as CEO, Stephen Sanderson has been less Moses, more False Prophet. Remember: “I’ve seen, touched and smelled oil”, or words to that effect? Or an oilfield of “national significance” that was, he declared, UKOG’s “flagship” asset? A lexicon that has gone the same way as old English, into disuse and abandonment, as even he now sees how his bombast and actual reality walk different paths.
With this in mind, and the fact that Pentecost - the birth of speaking in strange tongues - is almost upon us, it’s worth remembering the old stock market adage, caveat emptor! Buyer beware!
By my estimate, UKOG produced 65,000 barrels of oil from Horse Hill in 2018-2019. At 28 April, 7 months into the financial year, it declared it has “now produced over 100,000 barrels”. So I guess, no more than 45,000 barrels. I’d therefore say no more than 70,000 barrels will be produced for the year to 30 September 2020.
At $60 a barrel that would be way to little revenue (70,000x60x86%) = £3.6m, gross. With a much lower oil price now, that comes down significantly in the second half.
In short, UKOG is not generating anywhere near enough cash to cover its capex or even opex. It really needs to be producing at least 300,000 barrels a year at $60 a barrel. It’s now effectively using money from a placing to reduce the extent of further equity dilution. Under its current CEO, dilution of original equity is now a massive 81% (1,649,036,509/8,606,469,321) and still rising, faster at a share price not just 1/3rd below that of when he joined (0.24p/0.36p) but at record lows. It’s fallen through every price level of previous placings.
Whilst UKOG may eventually become cash flow positive at Horse Hill, I’ve concluded the probability of it doing so under its current leadership and ownership is fast diminishing. With debt-equity conversions and negative cash flow in the absence of producing 300,000 barrels a year, the realistic range for additional share issues over the next 2 years is up to 2.5bn shares. This takes account of the current share price level, delays, testing the existing well to establish stable flow, etc.
How can such a tremendous volume of additional equity be absorbed without crushing the equilibrium market price significantly downwards from 0.24p?
With 81% dilution of original holders, through issuance of over £54m of new shares under our CEO, it’s clearly been an awful buy and hold investment – something its near term cash flow generation means it‘s unlikely to improve upon in the next few years. Perhaps that’s why our CEO has never bought any shares…..
Remember: UKOG is just one of over 2,000 investment possibilities on the London Stock Exchange. There are many, many alternative investment opportunities, run by invested leadership teams.
Like a slowly melting iceberg, increasing numbers of UKOG shareholders have realised this, and left to go elsewhere, some capital intact, to fight another day, on another - hopefully profitable - front. They have avoided the temptation to “average” down on a share whose price has declined on almost 50% of trading days since September 2017, and remained unchanged on another 20% of trading days.
Following our CEO, they’ve avoided throwing good money after bad.
Stephen Sanderson became UKOG CEO on 27/1/2015. He has developed into “Hurricane Sanderson”, or ‘El Huracán, packing Category 5 “catastrophic” skills to wreak devastation on the wealth of his long term shareholders.
UKOG had 1,649,036,509 shares on 26/1/2015; today, 64 months later, it has 8,486,797,492 shares. More than 5x as many, as new shares have been issued at a compound annual rate of around 35%. The shares in issue when he took over account for 19% of the shares in issue now. Massive dilution. And with £2.325m debt of YA/Riverfort shares still to be converted into equity, further dilution is coming.
UKOG’s share price closed at 0.36p on 26/1/2015. Today, it trades at 0.22p. Almost 40% less.
UKOG’s market cap on 26/1/2015 was £5,936,531. Today, it is £18.7m. The increase, £12.8m, is more apparent than real. Consider: 2014-15, money raised £8.32m; 2015-16, £4.41m; 2016-17, £7.46m; 2017-18, £21.63m; 2018-19, £9m; 2019-20, £3.275m (so far). That’s £54.095m.
£54.095m invested by shareholders; but only £12.8m of additional value attributed by the market. £41.3m of shareholder value destroyed by El Huracán.
Why?
Consider: his cash salary in each year since 2015: £51,000, £607,000, £240,000, £275,000, £662,000. That’s £1.835m in total. Previously, I estimated 2018-2019 total Horse Hill oil production at 65,000 barrels. At $60 a barrel, UKOG’s then share would have left it with (60x65,000x46.735%), around £1.823m. Gross, before cost of sales.
Effectively, El Huracán’s cumulative cash salary and cash bonus drawdowns have exceeded all the net cash UKOG received from 65,000 barrels of oil produced and sold in 2018-2019. They were almost as much as UKOG raised in its December 2019 placing (£2m), and much more than the £1.275m it raised in its April 2020 placing. In other words, the monumental outflow of cash in salary and bonuses left insufficient internally generated cash to cover the essential needs of the business.
Beyond what he took out for himself is the poor productivity of his investments. Some of these are just pieces of paper conveying certain rights and obligations to UKOG. For the monumental cash sums paid to him, as the person with ultimate responsibility, he used the wrong drilling fluids at Broadford Bridge in 2017, he failed to secure the timely arriving of the rig in 2019, he drilled into water in 2019, he failed to secure the timely arrival of the diagnostic device for months, he has continually allowed Surrey County Council to postpone planning approval meetings, and he almost doubled the number of employees without even having the ability to pay the costs of their redundancy.
After 64 months at the helm of UKOG, all El Huracán has to show for £54m of new money is....well, nothing. The Horse Hill oil has simply paid his cumulative cash salary and bonus. His claim that “we are optimistic that Horse Hill's horizontal production targets of 720-1,080 bopd per well can be met”, made over a year ago, is
Many shareholders continue to express fury that, for the year to 30 September 2019, Stephen Sanderson took home £624,000 in cash from UKOG. On top of this cash was another £142,000 of share based payments. A total of £766,000.
At 1 August 2019, UKOG reported Horse Hill “total aggregate Portland and Kimmeridge” production of 60,186 barrels. Some of this production occurred in the financial year 1 October 2017-30 September 2018. At 9 October 2019, aggregate production totalled 71,368 barrels. Let’s assume that for the financial year to 30 September 2019 UKOG produced 65,000 barrels of oil. Let’s generously assume each of these barrels sold for $60. That’s £3.9m. Gross.
Only on 11 September 2019 did UKOG boost its share of this sum from 46.735% to 85.635%. So, for the period as a whole less than £2m of the £3.9m came to UKOG. Gross. Even less in net terms (after cost of sales). And of the net sales, Sanderson walked away with £624,000. So somewhere between 1/3rd-1/2. Truly a vampire squid.
Gobsmacking. Staggering. The share price continued to plummet and shareholder value rapidly eviscerate as the consequences of such extreme avarice played out through helping push the company to cash negative. So £12.5m had to be raised by issuing billions of shares in the year to 30 September 2019, more cash for surface facilities (“works necessary to bring HH-1 and HH-2z into stable production”) through another 235m shares in December 2019, and in April 2020 another £1.275m and 637.5m shares for, inter alia, redundancy payments and production facilities.
With the oil price down 50%, the 50% cut in the salary of the un-named executive means the pay drain issue is unchanged in relative terms.
UKOG boasts of its assets. But, just as a jigsaw-puzzle becomes easier to solve the more pieces are successfully laid, increasing number of long term investors have sussed out the modus operandi of Sanderson - “in thought and word and deed, and in what he has left undone” - to arrive at the inescapable fact. Barring a miracle the like of which would deserve to be recorded in the next Guinness book of world records, UKOG will not have the cash to develop its assets, and bring its shareholders to pastures green. It’s having to tap its shareholders for everything now, because the internally generated cash just isn’t there.
In fact, with its lowly share price, millions of pounds of shares still to be converted by Riverfort / YA, and cash negative position, UKOG’s equivalent of the coronavirus R, the reproduction rate of its equity, is greater than 1. Meaning? Meaning that unless that miracle occurs, it will need to issue increasing numbers of shares, crushing the wealth of existing holders ever more rapidly.
Through serial incompetence, visceral greed, and a generally experienced dose of bad luck, Sanderson has brought the company to its knees and now needs to go.
As soon as possible, please.
Until Broadford Bridge, the famous song “We Shall Overcome” would have been a suitable battle cry for long term shareholders in UKOG. Verse 1:
We shall overcome, we shall overcome,
We shall overcome someday;
Oh, deep in my heart, I do believe,
We shall overcome someday.
We really believed we had invested in a company with a seriously good future. Unfortunately, since then increasing numbers of us have come to realise that Stephen Sanderson substituting for “the Lord” in verse 2 of that song is no longer sensible or credible.
The Lord will see us through, The Lord will see us through,
The Lord will see us through someday;
Oh, deep in my heart, I do believe,
We shall overcome someday.
Those of us who have seen this have bailed out of UKOG, partially or completely. We simply don’t believe in verses 3 and 5 under current management:
We're on to victory, We're on to victory,
We're on to victory someday;
Oh, deep in my heart, I do believe,
We're on to victory someday.
We are not afraid, we are not afraid,
We are not afraid today;
Oh, deep in my heart, I do believe,
We are not afraid today.
We have become afraid of a management unable to deliver on time. An avaricious management. Management by gaslighting. Management by evasion. Zero-sum management: I win, you lose: I invest nothing, you invest and become increasingly diluted.
For me and many others, Broadford Bridge and its unpleasant aftermath has distilled the truth from fiction. It has become our epiphany, so that verses 6 and 7 have become our lodestones:
The truth shall make us free, the truth shall make us free,
The truth shall make us free someday;
Oh, deep in my heart, I do believe,
The truth shall make us free someday.
We shall live in peace, we shall live in peace,
We shall live in peace someday;
Oh, deep in my heart, I do believe,
We shall live in peace someday.
There are opportunities aplenty in the UK stock market to make money - over 2,000 quoted companies. UKOG has lost most of its long term shareholders money, by issuing billions of shares whilst operationally incurring vast costs in terms of salaries, serial delays, and delivering inadequate oil flows. Without becoming cash flow positive (or raising debt), it is inevitable that further shares will be issued, at lower prices. Shares in issue will balloon, dilution will accelerate.
Whilst I still have a few million in UKOG, my investment focus now is firmly elsewhere. I believe the “peace” UKOG shareholders long for in terms of making and sustaining a profitable investment is way beyond the professional (and moral) capabilities of UKOG’s current management to deliver.
But like chemistry students in the lab at school, each one of us has to distil their truth from fiction about UKOG in his or her own time.
It had to be expected.
UKOG has raised million of pounds each year under Sanderson. 2020 is no different. More shares in issue, more dilution. For everyone except Sanderson, his executives, and YA/Riverfort.
Post its failings at Broadford Bridge, UKOG has descended into an utter mess. RNSs have become the embodiment of this mess - providing an incoherent, inconsistent and vague narrative to shareholders.
Take 3 points from today’s RNS.
First, other companies have specifically named executives who have taken pay cuts; this one simply says its executives have taken a cut of 20%-50%. Why not be specific as to who is taking what cut? There are two execs and two NEDs. And as Sanderson’s bonus was almost the equivalent of his salary, why not mention what will happen to his bonus?
Second, UKOG claims for its cost cutting measures “many of which were underway before the pandemic struck”. How odd then that whilst the UK went into lockdown on 23 March, UKOG released its Final Results on 31 March which, despite acknowledging the impact of COVID on its operations, still included a £310,000 cash bonus to Sanderson. Very strange cost cutting measures that, contrary to other companies seeking to conserve cash under lockdown, instead doles it out! His cash bonus was almost 25% of the money now being sought today, less than a month later, “to fund the above cost reductions”. Utterly nonsensical and incoherent, and scarcely - if at all - credible.
Third, today’s RNS refers to “daily flow rates from PRODUCTION START at Horse Hill averaging”. Which means from when specifically? A year on from when the well should have been drilled, and despite raising £12.5m last year, and seeking a further £1.275m today, Sanderson can still only refer to some vague and historical “average” rate of over 300 bopd. This is no further on than the rates reported back in 2018. The “over 100,000” barrels is a complete red herring, as its revenues have clearly been insufficient to support a CEO requiring an annual cash payment of £766,000 and who rules over a staff he expanded from 6 to 11 employees, some of whom he is now seeking fresh money to pay off. Gaslighting of shareholders (“say it ain’t so”) comes to mind.
Sanderson has promised positive cash flow for years. Yet, with an average 300 bopd, an oil price that has more than halved, COVID delaying interventions that might increase output, somewhere north of 700m shares completely unwanted by YA/Riverfort, Tellurian and others, and a rapacious executive team that is not invested in the company they run, the nightmare for shareholders will, in my opinion, likely continue.
Captain Tom Moore is proof that extraordinary things can be achieved by extraordinary people. Something very extraordinary needs to happen at UKOG to prove me wrong. Whilst I hope it does, I think Sanderson will, like a Dickensian character, continue to serve up more unpleasant gruel to his shareholders.
Caveat emptor. Buyer beware.
I said in my previous posting that, since 2017, UKOG shares have declined on almost 50% of trading days, and made no gains on around 70% of days. That’s dreadful. Long term UKOG shareholders have really forgotten what it’s like to make serious profit. And with 800m plus shares unwanted by Tellurian, YA / Riverfort and other entities who have been suckered into accepting them at higher prices instead of cash, there is a gale force headwind for buyers to overcome to see meaningful gains.
The current well should have been drilled a year ago. It should have been in production by now, adding to the balance sheet, and providing a demonstrable asset to use for debt finance. Instead, through monumental incompetence, we are here a year on with a flow rate of anything from 10 bopd to over 600 bopd. We simply don’t know which. And now COVID-19 means ‘tinkerman’ Sanderson cannot make his well “interventions”. So we might go months without knowing whether the many tens of millions of pounds raised by him by decimating the share price through new equity was for the higher or lower figures. Positive cash flow has disappeared into this uncertain future, and appetite to buy the shares is drying up....JBER lowered its offer to an historic low (at least since 2015) of 0.30 just after 4pm, and there was no stampede of buyers - indeed 8 minutes went by without a single buy. It’s pointless to refer to UKOG “assets”. They all require considerable capex to develop, which a cash negative company with no assets has to fund with more equity, and therefore more dilution to existing shareholders. The negative cash flow is significantly impacted by the hundreds of thousands Sanderson pays himself to preside over a company whose headcount has almost doubled from 6 to 11, despite its serial operational failures.
I’ve sold millions of these shares in the past two months, and quickly made substantial gains elsewhere. I still have millions more in UKOG (holding for final flow test figure). But the days when it allowed its long term shareholders to dream big are behind us, I think. Led by a CEO with no invested equity, who pays himself through his remuneration committee cronies obscene amounts for failure to preside over 6-11 people, and deliver serial operational failures, my Damascene conversion has occurred. Five years ago, a UKOG shareholder was owner of 100% of the company. The equivalent stake now is less than 30%. By the time further assets are developed, that stake may well be worth less than 10%, especially if equity has to be raised at, for example, £0.002.
Yes, with rose tinted glasses on, some may still dream of the sunny green investment uplands of a highly cash generative company. But I don’t wear such glasses anymore, at least not for a company led by Stephen Sanderson.
Unfortunately, UKOG has become a triple D company - serially Disappointing in terms of achieving its most important performance target (sufficient oil to become cash flow positive), experiencing serial operational and planning Delays, and consequently offering its shareholders only serial Dilution of their ownership stakes in the company. Disappointment, Delays, Dilution.
How many RNSs has it issued since early Broadford Bridge where the results have been qualified, timescales shifted further into the future, where tests have been dropped, and that as a consequence have been opaque and inconsistent, and led to the share price falling? In fact, UKOG shares have declined for 307 in the 633 trading days between 30 September 2017 and 30 March 2020. That is, just under 50%. On almost 70% of trading days, they were unchanged or declined. These figures are completely unacceptable. Yet, the CEO is awarded a near 100% cash bonus for meeting a mythical “challenging target” for his performance. It patently does not include the share price, which should worry current shareholders.
Delays, delays, delays! Were we ever told the results from core samples taken from Broadford Bridge, and promised “in due course”? Local authority planning meetings delayed from one month to the next, for elections, holidays, or any other half plausible excuse. Despite having many months to plan the current “back to back” drilling campaign at Horse Hill, the executive team couldn’t procure a necessary rig for months, then drilled through water, then couldn’t procure the necessary diagnostic device for months, and now has to undertake weeks of well clean up, but has had to throttle back site activity because of covid-19. All reducing possible oil production and thus ability to achieve a cash flow positive position.
Which of course raises the spectre of yet more dilution for shareholders. Riverfort / YA finance is fine for a company operating well and whose share price is steadily rising: it’s less dilutive than a placing. But for an operationally weak company like UKOG, experiencing serial delays from every direction, it’s very destructive. The CEO has twice used Riverfort / YA finance, but with the share price being flat or declining on almost 70% of trading days since October 2017, the dilution has been horrifying. Most long term shareholders are suffering large losses.
If only UKOG really had the fabled institutional investors it keeps referring to. With nominee accounts accounting for over 70% of the shares in issue, the UKOG executive team are protected from serious activist scrutiny. And with shares in the company so far down under their leadership, I can’t believe any of them will ever be invited to work in another UK quoted company. The cash cycling from serial placings and Riverfort / YA fund raisings through UKOG is their pension pots, and I suspect they will continue to significantly tap it.
According to yesterday’s Annual Statement, “The bonus targets are operated under a balanced scorecard which focuses on a mixture of strategic and operation goals. The percentage of maximum bonus entitlement received is based on the achievement of individually challenging targets. The maximum potential bonus for Executive Directors is up to 100% of base salary.” Stephen Sanderson was paid a bonus of 99% (£310,000) of his salary (£314,000). On 30 September 2018, UKOG’s closing share price was 1.925p; on 30 September 2019, its closing share price was 1.1p. In other words, the share price declined over the relevant period by 44%.
UKOG is owned by its ordinary shareholders, and the Director’s Report claims there is a “strong alignment of interest between staff, Executive directors and shareholders”. This is laughable. Not only are they NOT shareholders, but what kind of balanced scorecard rewards its CEO with a near maximum bonus when the actual owners of the company have suffered a loss of 44%?
In Financial Summary, we are told UKOG raised £5.5 from two placings, plus £5.5m from Riverfort/YA. In other words, £11m. Of which almost 3% essentially went to pay the bonus of the CEO. Today, UKOG has issued a further 255m shares to complete the Tellurian acquisition, yet if the bonus paid to the CEO had been used to inject a cash element into the final £1m payment only 176m shares would need to have been issued to complete the deal. In other words, the actions of the executive directors are not at all aligned with those of shareholders. They have sucked out a significant proportion of the £11m raised in a variety of ways, and not bought any shares in the company. These two factors have directly weakened the share price. It’s simply staggering that for all his operational and strategic missteps since Broadford Bridge - none more so than opting for Riverfort / YA finance rather than a conventional placing when the operational outlook was weakened by the failure to deliver oil at Broadford Bridge, regulatory delay, delay in securing a rig, water ingress, delay in securing the relevant diagnostic tool, and now Covid-19 - his failure is rewarded with such largesse. Its added billions of extra and unnecessary shares, that a conventional placing would have avoided.
The oil is the only thing attracting investors to UKOG. It’s certainly not its corporate governance, nor the CEO.
Private investor sentiment surrounding UKOG is truly awful at the moment. That’s not surprising, given the slide in share price since the turn of the year means probably ALL long term holders are now making losses.
It’s not hard to see why.
Happy New Year UKOG-style was the introduction of 331m new shares, to Tellurian, which is now aggressively selling them in the market. Supply-demand for UKOG shares, imbalanced since the 2017 Broadford Bridge debacle, which opened our eyes to Stephen Sanderson, CEO and Executive Chairman of UKOG, became even more so with the new shares. With his continuing unwillingness to buy shares on the open market in the company he has now led for many years combined with his ability to find and slip on every possible banana skin in the exploration and production world (eg wrong drilling fluids, water egress); endless operational delays and missed targets; serially disjointed and incomplete RNSs that repeat mantras - “highly prospective”, “flagship asset”, “confidence” - that now fall on deaf ears; a tendency to spend on assets ahead of proving they can even flow (Broadford Bridge was finished as a production well, and now there is heavy spending on Horse Hill despite no proof it will actually deliver the flows hoped for).....The corporate governance of UKOG is equally awful, with no checks and balances on his actions: the disappearance of share certificates means there is no direct relationship between UKOG with its thousands of private investors, and the fact he is both Chairman and CEO means there is no internal pressure on him to purchase shares in UKOG. Interestingly, J Sainsbury, a business of £4.5bn employing almost 190,000 employees is paying its new CEO £875k. UKOG, with a handful of employees and a market cap of £50m is paying its CEO around £600k. Absolutely ridiculous, made even more so by the fact the shares have lost around 95% of their value since 2017. Under his stewardship, UKOG has slowly ceased representing a dream, becoming a gamble rather than an investment (ironic given the ‘Investments’ in its name). If the horizontal flows very substantially higher than the vertical well, the gamble will pay off. If not, cash-flow positive will recede into a distance filled with more equity raisings, and no doubt more skids on banana skins
What is needed? A new and charismatic CEO, who will invest directly in UKOG, who can speak with confidence and authority to stakeholders, achieve his targets, win the backing of institutional and corporate investors, and who will resize and refocus the business according to the company’s cash flow. None of the current empire building.
Things are balanced on a fine knife edge now. Irrespective of actual outcome, the reputation of Stephen Sanderson is a busted flush. No CEO can lose so many of their shareholders so much money and expect it to survive intact. It’s a point of lasting public professional shame, whether he wants to acknowledge it or not.
Futura Medical (FM) has set investors an exam question that many have chosen (by selling) to avoid answering. Personally, after listening to the podcast yesterday, I think the exam question is pretty much answerable, so that the shares are a buy.
According to the webcast, Dermasys’ use as the placebo in Phase III was required by regulators. In this trial, based on a representative sample number (albeit with no men living in the United States), it returned highly statistically significant results. These would have been at the 5% or 1% level (I think which one was on the slides in the webcast). So the good news is that the impact of Dermasys is very real (in hard evidence terms), and - good news again - with far fewer side effects than the ED drugs currently prescribed and sold. The precise transmission mechanism for this very real effect was speculated upon in the webcast, but scientists can now backfill this gap in our understanding. Some drug / device discoveries are simply unexpected, or left of field, and this is one of them.
As a medical device rather than a drug, Dermasys’ path to commerciality is more straightforward and faster in regulatory terms - further good news. And, perhaps the cherry on the cake here is that under a patent lasting until 2039, Dermasys has a far larger addressable market than any prescription-only drug. For an activity that is popular among us all, I can’t believe that any man would turn down the chance to at least try Dermasys if offered the chance. So for me its addressable market is men of all ages, with or without ED, on or off current ED drugs. With few (or no) side effects, no prescription to be sought, and no potentially embarrassing conversation to be had at point of sale, I scratch my head and shrug my shoulders as to why investors haven’t seen beyond the initially chilling “MED2005 did not meet primary endpoints versus placebo” in the RNS to the gold nugget that the results of Phase III say is Dermasys.
Better, safer, more frequent and cheaper sex sells, for everyone. And we now know Dermasys offers this, whether or not we currently understand the precise science involved. Surely that is the answer investors need to give the exam question.
Another RNS / tweet from UKOG. Yet another occasion for trotting out those by now threadbare words and expressions with too many investors of “confidence” and “significantly greater”. Their positive impact on the share price? Zilch.
Why? After years of disappointment for long term investors, with operational mis-hits at Broadford Bridge leading to a series of alarmingly vague, inconsistent and trust-busting RNSs; endless delays in planning and rig mobilisation; and serially missed targets, actual and potential investors ask themselves the killer question, “if there is such confidence in significantly greater flows, why is Stephen Sanderson (SS), the CEO, still uninvested in the shares of the company he’s led for 5-6 years?” He’s asking investors to believe in something he clearly has not been prepared to back with his own money, invested on the same terms and in the same way as the shareholders he relies upon for support. We’re all invested in UKOG because we’re motivated to make money. If he claims “confidence”, but this confidence still leaves him univested, he is demonstrating cognitive dissonance. And by now, weary long term shareholders - fed his diet of a low / falling UKOG share price and mounting personal losses - and potential investors see this on our radars. We simply don’t believe his words, or at least distrust them enough not to take any positive action to his RNS / tweet. So the share price fails to react positively, like this morning. All so predictable.
The cognitive dissonance of SS’ communications will not stop - and the discount on UKOG shares close - until he finally buys UKOG shares, rather than simply issuing and holding ‘in the money’ options on them. Or perhaps until he actually successfully delivers “significantly greater” flows, rather than repeatedly asking shareholders to believe in them.
The killer question will never go away until you make it, Mr Sanderson. And you won’t do so by RNSs like today’s.
I’ve held UKOG shares for many years.
I also take off any rose-tinted spectacles I might see them through.
Dispassionately, objectively, what do I see?
Success, first time around in 2017, in flowing oil at its 100%-owned Broadford Bridge (BB) would have meant UKOG today would be a far stronger company, with billions of fewer shares in issue, a far higher share price, and much happier shareholders.
Instead, post BB, 5 parts of UKOG’s engine have combined to leave its share price hovering around 1p.
First is the UK’s appalling planning consent regime. Endless consultation cycles; endless postponements of hearings, for everything and nothing; councillors grandstanding at hearings, making illegal requests. No wonder UK productivity growth is so abysmal, when the regulatory framework is so utterly shambolic, preventing companies getting permission to generate revenue and jobs. The broken planning regime has produced a vacuum in UKOG’s main business as airless as the space between the planets.
Second is the ‘essential facility’ of the oil rig. The UK’s economy may rank 5th largest in the world, but it seems to have only one 3rd party onshore rig for UKOG to use, creating months of delay in drilling at Horse Hill.
Third is the operational failure to get BB to flow first time around. After declaring BB of ‘national significance’ and UKOG’s ‘flagship asset’, the repeated sleights of hand in subsequent RNSs by UKOG’s CEO Stephen Sanderson (SS) as he failed to get it to flow caused shareholder unrest, alarm and finally departure as his credibility fell.
Fourth is the ‘uninvested CEO’. After 5-6 years, SS still has not ‘signalled’ his confidence in the company he runs by buying its shares in the open market (if UKOG collapses, millions of small investors will be wiped out, but his savings will be safe), resulting in the shares trading at a significant discount. Across the billions of shares sold since BB, this hidden financial cost has run into hundreds of millions, if not billions, of pounds, with EVERY SELLER affected.
Fifth, SS has lost credibility through becoming the ‘printing press CEO’, raising millions of pounds at low share prices by flooding the market with billions of shares - depressing the price, creating a long tail of paper losses among shareholders, and generating extensive unhappiness among them.
So, post BB: operational vacuum created by broken regulatory framework + delays in securing essential facility oil rig + operational failures at BB + uninvested CEO + printing press CEO = 1p share price. This is all supply-side related, some of it outside the UKOG’s control, but some of it absolutely within it.
The imminent flow test at Horse Hill is essentially make or break for UKOG. Make it, and supply conditions improve and the company moves towards positive cash flow, and a virtuous circle for shareholders. Break it, and UKOG will experience much more dilution of shareholders.