3 Reasons I Bought Upland Resources

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3 Reasons I Bought Upland Resources

The content of this blog, or content associated with it, is not intended as investment advice. Please do you own research.

UPDATED 25/11/16

To recent my latest blog post on Upland Resources click here

UPDATED 28/10/16:

Since I wrote the blog below, I’ve had Steve, the CEO, back on the podcast (below).

At 15 minutes 50 seconds Steve seems to suggest they are very close announcing something, which will be the 2nd step in the strategy:

Acquiring 2 near producing, cash flow generating “safe” assets, then going for more high imapact, high potential assets.

Read below to learn about the board, their experience and contacts.

3 Reasons I Bought Upland Resources

UPLAND RESOURCES

Back in February, I had Steve Staley (CEO of Upland Resources) on the podcast. I was impressed enough by his previous experience and strategy for Upland Resources (UPL), that I bought some shares.

Within a month I was 20% up.

Scroll forward a few months and I’m going through my portfolio, looking to trim the amount of holdings I have. I come across my Upland shares. I’m now only around 8% up. I go to hit the sell button, to bank my shrinking profit, when I decide to do some more research, on the reasons I initially bought.

The result? I’ve ended up buying more shares in Upland Resources.

On the face of it, Upland Resources doesn’t look particularly exciting right now but if you take a closer look at the experience of the management and the major stakeholders, the potential starts to look a lot more interesting.

My prediction: this company will have a minimum of three assets, almost all producing, by this time next year.

Upland Resources (UPL)

upl-share-price

Share Price: 1.22p

Market Cap: £2.6m

Shares in issue: 213m

Cash: At 31st December 2015, they reported £1.167m and no debt

 

About Upland

screenshot-2016-09-24-10-25-02

Upland Resources Limited (UPL) is listed on the main market of the London Stock Exchange.

“We are actively building a portfolio of attractive upstream assets, with a wide geographical remit and with the potential to deliver excellent returns to our shareholders. We target assets with an attractive risk – reward profile”

3 Reasons I Bought Upland Resources

1. Assets

hardstoft-seismic

Harstoft

At present Upland have one resource asset, a 16.67% share in Block SK46c in the East Midlands, awarded to them as part of the 14th UK Onshore Oil and Gas Licensing Round on 17th December 2015.

The other partners are:

Europa Oil & Gas Limited (16.66%)

Shale Petroleum Limited (16.66%)

*Ineos Upstream Limited (50%)

Ineos is part of part of the multinational Ineos conglomerate. Their revenue in 2014 was $54bn and they have 17,000 employees.

Total Hardstoft resource net to Upland, based on Blackwatch’s CPR, is estimated at 1.125 MMbbl. Blackwatch estimates the chance of success for the contingent resource at 80% and 64% for the prospective resource. The Company estimates its interest in Hardstoft alone to be worth about 2.2p/share on a risked basis.

 

Other Potential Assets

oil-assets

Upland are currently very active in looking for other assets. Their focus is very much centred on the far east, in particular, Malaysia (if their board and major shareholders are anything to go by – see below). Although the board has a lot of experience and connections in North Africa too.

CEO Dr Steve Staley in their half year report – 30th March 2016

“As previously alluded to, Upland is presently evaluating a number of other attractive high-quality opportunities onshore UK and is also leveraging strong regional contacts to extend the potential acquisition focus to Malaysia, a jurisdiction we consider extremely attractive”.

Steve has an excellent track record in due diligence when it comes to assessing assets. The CPR report on Hardstoft, underlines Upland’s strategy going forward:

  • Attractive risk : reward balance
  • Low-cost entry and cheap work programme cost
  • Robust economics

 

2. The Management

ChairmanNorza Zakaria (holds 29.46% of Upland shares)

norza-zakira

Norza is a highly experienced businessman and as well as Chartered Accountant with the Malaysian Institute of Accountants he is a Fellow of the Australian Certified Practising Accountants.

He is currently a director of several public listed companies in Malaysia including Bintulu Port Holdings Bhd (in excess of £500m mcap).

Previously, he has also held senior positions with Petronas, Central Bank of Malaysia and Arthur Andersen & Co. He is also currently the Chairman of National Sports Institute of Malaysia.

 

CEO – Dr Steve Staley (holds 7.63% of Upland shares)

steve-staley

Steve was a technical consultant to, and non-executive director of, Cove Energy plc, the highly successful East Africa focused explorer that went from having a market capitalisation of £2 million in mid-2009 to being sold to PTTP for £1.2 billion in less than three years. Prior to this he has worked for Cinergy Corp., Conoco and BP.

Steve is also a non-executive director of 88 Energy (88E). If you’re not aware of 88 Energy, it’s been one of the hottest stocks amongst private investors this year. It’s share price has risen from 0.26p to 2.4p. At one point it hit 4.35p.

He also co-founded and brought to the AIM market both Fastnet Oil & Gas plc (FAST) where he was the founding CEO and Independent Resources (IRG) plc where he was the founding Managing Director.

At both IRG and FAST it was Steve’s role to bring them to the market, with investable assets and to hand over the day to day running to other directors.

He brought IRG to AIM raising £5m. At the placing price of 60p per share, the company was valued at just over £20 million. It’s valuation doubled in size within 3 years.

In August 2009 Steve left the IRG, over concerns the company was focussing too much on one asset, to the detriment of the other assets in the portfolio. Thus putting of all its eggs in one basket, which has subsequently lead to it’s shrinking share price.

As regards FAST it was never Steve’s ambition to stay with the company for the long term, he was already, at this time, busy with Upland Resources.

The above, proves to me that Steve’s strength, is not only in assessing decent assets but also in raising funds and bringing companies to market.

He holds a BSc(Hons.) in Geophysics from Edinburgh University, a PhD in Petroleum Geology from Sheffield University and an MBA from Warwick University. He is a Fellow of the Geological Society and a member of the EAGE, the PESGB and The Arctic Club.

 

Non-Executive Director – Datuk Haji Bolhassan Bin Haji Di

Datuk Haji Bolhassan Bin Haji Di

Bolhassan, an elected member of the Sarawak State Legislative Assembly from 1987 to 2011 (Sarawak being one of two Malaysian States upon the Island of Borneo), has many years of political and commercial experience within the region.


A graduate of the School of Engineering at Sheffield University, Bolhassan began his career in 1979 at Sarawak Shell Bhd. (a subsidiary of Royal Dutch Shell plc) where he gained project planning, design, construction, commissioning and start-up experience in offshore projects. These included the F6A project in Sarawak waters (the largest offshore gas project in the region), the E11 and F23 gas production projects in Sarawak waters and also projects such as the St Joseph and South Furious offshore oil production platforms in Sabah waters.

Bolhassan has also had significant oil and gas experience with Shell in South Korea, Singapore, the North Sea and the Netherlands.

Upland CEO, Steve Staley, commented:

“I am delighted to welcome such a highly distinguished individual to the team. Bolhassan’s involvement is a great endorsement of our strategy to acquire assets within the South East Asian region. His appointment strengthens the Board and brings substantial political, technical and commercial experience in the region which should greatly aid our efforts to execute our corporate strategy.”

 

Shareholders

optiva-securities

The shares are of Upland resources are very tightly held.

Of the 213m shares in issue, 131.6m (or 61.66%) are held by directors, the house brokers, related parties and businessmen.

Only 38% or 81.8m of the shares are outstanding.

On 30th March 2016 – Norza Zakaria, Chairman of the Company, purchased 18,000,000 ordinary shares in the Company at 1p per share on that date (£180,000).

On 28th June 2016 – Mr. Aimi Aizal Bin Nasharuddin has purchased 22,500,000 ordinary shares of one pence each in the Company (£225,000).

HOLDER NUMBER %
CEO STEPHEN STALEY 16,287,564 7.63%
Optiva Securities Limited 15,000,000 7.03%
CHAIRMAN Norza Zakaria 62,876,642 29.46%
NED Mr. Bolhassan Di 3,000,000 1.41%
Mr. Aimi Aizal Bin Nasharuddin 22,500,000 10.54%
Portmann Capital 6,438,323 3.02%
Gerard Walsh 4,506,824 2.11%
TOTAL NOT IN FLOAT 130,609,353
TOTAL AMOUNT OF SHARES 213,437,861 MCAP
SHARES OUTSTANDING 82,828,508 61.19%
% SHARES OUTSTANDING 38.81%

Not only do the people involved with the company have a lot of skin in the game, (the Chairman holding the maximum at 29.46%) but their broker, Optiva Securities, holds over 7% and Portmann Capital is the company of Kurt Portmann, the Chairman of Optiva Securities.

Optiva Securites are also involved with Asiamet Resources (ARS), Tlou Energy (TLOU), EVR Holdings (EVRH).

 

Catalysts – 3 bits of significant news to come

news

1. Formal Award of the Hardstoft Licence.

Even though they’ve been awarded the licence at Hardstoft, they’re still awaiting formal notification of the award, which is in effect, a rubber stamping process. This could happen any day. Having said that, it’s been delayed beyond expectations.

In their 30th March half year results Steve Staley stated that he “expects that this may be delivered in the next few weeks”.

There’s no knowing the official reason for this delay but industry people says it’s to do with the reshuffle of government organisations that happened after the EU vote. The chances of the award, of this licence, not going ahead are very slight.

By the way this delay is not specific to Upland, it affects 159 onshore blocks parcelled up into 93 licences, which includes more than 47 companies.

The government, especially after the EU vote are more committed than ever to help UK business thrive, energy creation being a major part of this commitment.

2. Other Assets

oil-barrels-001

I believe Upland have honed in their focus to a handful of assets in the far east. It will only be a matter of time before they make a decision to invest in one or more of these.

Upland should have no problem raising funds, given the strength of the shareholder register and Steve’s previous experience. So I confidently predict any raising, if done using equity, will not be done in a detrimental way to existing shareholders. You only have to read through some of the previous RNS’s to see how many times Steve emphasises an, “attractive risk – reward balance for its shareholders”.

Heavily discounted fund raisings are normally conducted by companies struggling to find investors. Upland is not in that category.

3. Surprise Factor

surprise

Being well known and respected in the sector, Steve Staley is often approached with assets to appraise. Due diligence is his forte and should an asset fit his criteria:

  • Attractive risk : reward balance
  • Low-cost entry and cheap work programme cost
  • Robust economics

He should see few reasons, not to invest.

In Summary

CEO Dr Steve Staley has been instrumental in the development of some of the most exciting stories in the junior oil and gas sector over the last 15 years. With Upland Steve is in the driving seat and seems determined to find the right assets through exacting due diligence, which he believes will represent, “attractive risk – reward balance for its shareholders”.

Take Hardstoft, Blackwatch’s CPR, estimate the chance of success for the contingent resource at 80% and 64% for the prospective resource. If this is the standard we can come to expect, then I’m a more than happy to invest in Upland.

I’d like to caveat that with one thought. In my opinion, as long as these licence delays persist, there’s a probability that share price will soften. Two share levels worth remembering are 1p, the floatation price, also the price at which several directors bought shares and 1.3p another level the directors have bought shares at.

If you need reminding, this is a company valued at £2.6m, with around £1m in cash and an asset that has a high chance of delivering 1.125 MMbbl, estimated alone to worth about 2.2p/share.

Add to this the combined clout of the major shareholders, plus the fact that their overheads are small and you have an attractive proposition. Stephen is not only very careful when it comes to assessing assets but also when it comes to holding onto them. He likes to keep costs down, they don’t have a fancy office or lots of PA’s and they only spent £200,249 in 6 months to June 30th, which was mainly due to the one-off expenditures associated with the listing of the company’s shares.

If the share price does fall between now and the announcement of the award, hopefully my limit orders will get filled.

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