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Thesis:

Uniontown Energy (OTC:UTOG) has net assets worth less than $5M but a market capitalization of around $400M. In my opinion, this is because UTOG has been promoted through paid promoters, press releases, and a very small private placement. Recent promotions have failed to increase UTOG's stock price and the stock is already well off its high of $2.50. Since recent strong attempts to push the price up haven't worked, I expect the price will quickly fall. Notably, UTOG's current CFO, Terry Fields, has been associated with WLOC, another company that was promoted through those mediums. WLOC has fallen 91% from its high of $.72 on 1/14/11 to its current price of $.063, as of 5/16/11.

  • Price Target: $.10
  • Current Price: $1.76
  • Return: 94%

Assets:

On 11/15/10, UTOG agreed to purchase a natural gas property in Bourbon County, Kansas for $125,000; it didn’t go through because it did not close the transaction by the set date.

As of 1/31/11, UTOG had $157 in cash, $789 in total assets, and $630,238 in liabilities according to its 10-Q.

On 3/17/11, UTOG agreed to purchase a 75% interest in a 7,000 acre oil and gas property in Montana (Musselshell) for 10M restricted shares and the option to acquire 1M preferred shares (which have 250X the voting rights) for $3/share for up to 5 years.

On 4/5/11, the option to purchase 1M shares was replaced with the option to purchase 10M shares for $3/share for up to 5 years. In the Asset Acquisition Agreement under Schedule A, it says land purchase prices in the area have been between $50 and $100 per acre. This values the land between $350,000 and $700,000 and UTOG’s interest between $262,500 and $525,000.

Assuming no value for the options (which, if considered, would lower the UTOG valuation), UTOG valued itself between $.03 and $.05 in this transaction. If you want to add the tangible and intangible values listed in Schedule A, it adds an additional 75%*$531,550 or $.05/share. Here you can see the 8-K and Schedule A.

On 3/28/11, UTOG announced that it plans on making a second acquisition (New Miami) of 1480 gross acres in Northwest Montana and made an advanced $300,000 payment on 3/31/11. In addition, UTOG will bear all the development costs and only retain a 70% working interest. This transaction closed on 4/8/11.

On 4/1/11, UTOG announced that it made a $100,000 down payment on an 11,000 acre property in Northwest Montana (Teton River). The full details of the transaction have not been announced yet. There has been no related SEC filing, even though the transaction deserves an 8-K as a $100,000 down payment is undoubtedly a material amount of cash for UTOG.

On 4/26/11, UTOG announced that it agreed to purchase a 70% working interest in a 24,000 acre oil and gas property in Wyoming (Darby Block Prospect). UTOG plans on putting down a $1M down payment and an additional $16M over the next year as consideration. As UTOG does not appear to have anywhere near that amount of money, it will likely have to issue shares to come up with the cash. This could be a challenge, as I don’t know how many investors will buy shares. There has been no related SEC filing even though the transaction deserves an 8-K.

Insiders:

No Directors or Officers own any shares.

As 10/28/10, Terry Fields became the President/CEO/CFO/Director, the same day the previous President/CEO/CFO/Director, Jurgen Wolf, left the company. Wolf came on board only a couple weeks earlier, on 10/12/10. UTOG had two other Executives/Directors, who also joined and left at the same time as Wolf. Additionally, on 10/12/10 Marshall Diamond-Goldberg joined as a Director (also as a Technical Advisor and Secretary). Here is the related 8-K for the changes above and below in officers and directors.

Marshall Diamond-Goldberg resigned on 11/12/10 to avoid any perceived conflict of interest with the failed Bourbon County transaction, leaving Fields as the sole Executive/Director.

Terry Fields was initially the sole person at the helm of UTOG, and now he is the CFO. As mentioned above, he was also CEO of another company, Willow Creek Enterprises (WLOC or WLOCD), which was heavily promoted as high as $.72, before falling to its current price $.06 (see WLOCD's chart here; look at the end of 2010 and the beginning of 2011 to see the pump and subsequent dump), and has been involved with several other penny stocks (including Spirit Exploration, Daulton Capital Corp., and Meadow Bay Gold Corporation).

Market Capitalization:

Resulting from splits on 12/31/10 and 2/8/11 and the 10M issued from the asset purchase, UTOG has 224.5M common shares outstanding. If you include the private placement that brings it to 225.7M shares outstanding. At $1.76/share, that is a $397M market capitalization.

Promotion:

On 3/23/11, in a press release UTOG announced that it is going to have a 1M share private placement at $2.50/share and that $610,000 had been advanced to UTOG. UTOG said $300K was put towards the Musselshell transaction, but UTOG never mentioned any cash consideration for that land. Also, in its SEC filing, on page 27, it says there were no sales of unregistered securities except for the asset purchase. I don’t know why the SEC filings don’t mention that UTOG is doing a private placement or reference the sale of securities.

On 4/27/11, UTOG announced that it had raised $3M in its private placement by increasing the private placement by 200,000 shares because it was oversubscribed. UTOG also announced that it is currently negotiating a $5M private placement. It seems that UTOG didn’t get the bump in price that it wanted so the next day it released the same press release as a “reminder.” UTOG filed an 8-K on 5/2/10 that is dated 5/2/10 and only references $2.5M raised in the private placement.

All of its press releases have some estimate of POTENTIAL recoverable reserves which are very high when considering the purchase price. It is clearly using aggressive language as its talks about millions of barrels of oil in its properties, but there has been no certified reserve calculation. For example, in the Darby Block Prospect press release the CEO states:

With in-ground oil reserves prices ranging from $10 to $25 per barrel and the Darby Property’s estimated recoverable reserves of 120 million BOE, this acquisition will be a crown jewel in our growing asset portfolio.

It appears that he is trying to imply that this property could be worth over $1B, but to me that sounds ridiculous as UTOG only plans on paying (if it can raise the cash) $17M for it.

In addition to its promotional press releases, if you check the disclaimer pages of various newsletters (here, here, here, here, here, here, here, here, here), you can see the amounts paid to these newsletters for promoting the stock: StockMarketLife.com has already been paid $2.5M and has plans to be paid another $1.4M in the future to have this company promoted; AmericanEnergyReport.com has been paid $2.5M and expects to receive an additional $2M for continuing to promote it; BeaconEquity.com, WallStreet Advisors, OTC Stock Exchange (was paid $20,000 by an entity called EAG), MicroStock Profit (was paid $10,000 by Flip Ventures), and PennyStockCraze.com (was paid $10,000 by Flip Ventures) were also paid to pump UTOG. You can find more examples if you search online.

The promotion has expanded to include a recent Twitter campaign where the AmericanEnergyReport.com report was tweeted by many users paid to advertise it including celebrities such as Jon Gosselin (you have to request to follow Jon to see his tweets).

In addition, SISM Research started coverage of UTOG with an $8 PT. The report was based on Investrend Equity Research’s independent analysis and judgment. Investrend was paid by UTOG and another party, Youngal Group Ltd, in connection with this (see disclosures here and here). I don’t know how this can be called independent research. This report was written by Ernest Schlotter, who has previously written reports for other promotional companies (see here and here).

Summary:

In less than three months, UTOG went from being a worthless company with no assets (and significant liabilities) and one Executive/Director (who was in charge of another company where a pump had seemingly occurred) to a company with three properties worth less than $1M and a fourth worth $17M that hasn’t been paid for yet. However, its market capitalization is around $400M. It now has three employees and one non-executive director who own no shares.

In my opinion, UTOG has been promoted by the fact that it was able to complete a very small private placement (less than 1% of the market capitalization) at an absurd price. This company is most likely worth less than $5M (if you take the high end of valuations or the cost of acquisition, add in cash leftover from the private placement, and add in UTOG’s book value you get less than $3.5M in value), which is impressive considering that it was pretty much worthless a few months ago. However, the market is currently valuing it at 113X ($397M market capitalization versus a $3.5M estimate of value) that.

Risks:

The promotions could last longer and might start to impact the price even though it hasn't been affected recently.

It’s difficult to find shares to borrow and you could be forced to buy back borrowed shares at higher prices.

Catalysts:

Eventually the market will realize what is going on. It appears as if that process has already begun as the stock peaked in March and there were many “positive” reports after that which have not moved the stock price.

Updates:

On 5/16/11, UTOG released an 8-K explaining how they dismissed their old auditors and hired the Saturna Group instead. An article titled "More risky business on the OTC bulletin board" by the Vancouver Sun explains how questionable the firm is. Below is the relevant section of the article:

It is also interesting to note that Neurokine's auditors are Saturna Group Chartered Accountants LLP, formed last year by Henry Chow and Lonny Wong.

Chow and Wong were previously auditors at Manning Elliott LLP, which worked hand-in-hand with Green to float numerous sham companies on the bulletin board. A couple of years ago, Manning Elliott decided the reputational risk of dealing in these sorts of companies was too high, and wisely moved out of the field.

Chow and Wong, however, haven't been quite as reticent. Among their more recent clients is Mantra Venture Group Inc., whose president Larry Kristof was caught in the middle of a drug money seizure in Bellingham several years ago. Another client, Wolverine Exploration Inc., has seed shareholders who figured in other bulletin board scandals. Given their experience at Manning Elliott, they should know that this is risky business, in more ways than one.

Also, if you check Saturna’s website, it says “Check back for our full website launch Summer 2010”. So it appears that they still don’t have a fully functional website a year after the proposed launch date.

Disclosure: I am short OTC:UTOG.

Disclaimer: This article is intended for informational purposes only and you, the reader should not make any financial, investment, or trading decisions based upon the author’s commentary. Although the information set forth above has been obtained or derived from sources believed to be reliable, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does the author recommend that the above information serve as the basis of any investment decision. Before investing in a security, readers should carefully consider their financial position and risk tolerance to determine if such a stock selection is appropriate.

At any time, the author of this article may trade in or out of any securities that are mentioned in the article as long or short positions in his own personal portfolio or in client portfolios that he manages without disclosing this information. At the time this article was published, the author was holding a short position in UTOG either in his personal account or in accounts that he managed for others.

THIS ARTICLE IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITIES MENTIONED. THE AUTHOR ACCEPTS NO LIABILITY FOR HOW READERS MAY CHOOSE TO UTILIZE THE INFORMATION PRESENTED ABOVE.

Source: Uniontown Energy: Nearly Worthless Stock Being Heavily Promoted