PTHRF,,,evaluation,of,assets,and possible timeline to,production,21,hours,ago,from,reddit
$EEENF and $PTHRF due diligence following recent announcements r/pennystocks • Posted byu/Telemachus2021 2 days ago WholesomeSilverHugz $EEENF and $PTHRF due diligence following recent announcements DD
Yesterday 88 Energy released the slide pack from its Annual Shareholder Meeting and showed its interpretation of the extension of two horizons from the Pantheon Resources Talitha discovery into its Project IceWine acreage - these were the Slope Margin Deltaic sequences and the Slope Fan Systems.
Pantheon will be releasing resource updates on these two zones in the coming weeks. However, Pantheon did release a 2C contingent resource update on the Basin Floor Fan complex (now called Theta West) of 1.41 billion barrels recoverable.
Although the SMD and SFS are not expected to be quite as large, this still suggests significant discovered oil in the $EEENF acreage where they currently hold a 75% working interest. This provides a catalyst for stock price appreciation before 88E is able to return to the Merlin prospect next winter and could be more net barrels than Merlin.
To get an idea of how optimistic Pantheon management are, they did a round of media interviews yesterday:
Both $EEENF and $PTHRF (on the London market, 88E and PANR) seem worth a look…
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To see how contingent resources relate to reserves, see below:
The process of reserves recognition is a three step process:
Do you have legal title to the resource??
What is the volume that would be expected to be recovered with reasonable certainty??
Does the recovery of the expected volumes exceed the commerciality threshold??
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TLDR shortcut
Many people read Contingent Resources as being “uncommercial” but this is not what the term means. The proximity to infrastructure means that Pantheon’s Alkaid Contingent Resources exceed the commerciality threshold, but they have not received field development approval nor demonstrated the financial resources to develop Alkaid or the various Talitha discoveries (including the Theta West Project). This precludes their classification as Proved Reserves.
Since LKA has only classified a 76.5 Mbbl of the total Alkaid discovery (estimated to be potentially 300 Mbbl+ when including volumes under closure but down dip of the current “Lowest Known Oil”) as Contingent Resources there is appreciable upside above their current level. This means that the volumetric risk (i.e. that ultimate recovery will be less than is classified as Contingent Resources) could well be lower than for a Discovered Resource of 76.5 Mbbl all of which was classified as Proved Reserves
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STEP 1
In the case of Pantheon’s Alaskan assets, we can deal with the first step easily enough - either they own what they have been disclosing to the market or the directors are going to jail. This would clearly be something to be confirmed by due diligence on behalf of a potential buyer but the odds must be that they have legal title to the leases. In addition, due diligence would limit the volumetric assessment to only those parts of the accumulations that underlie the Pantheon leases.
STEP 3
We will return to step 2 (volumetric analysis) and address step 3 next because I believe this forms the crux of the question about how the certainty of Pantheon’s Contingent Resources estimate relates to Proved Reserves. The following passage is taken from the 2018 update to the SPE PRMS*. The Bold Italic comments, links and figures are my commentary and are intended to help understand how each element of the SPE definition applies to Pantheon’s Alkaid unit based on the LKA assessment (and now the Theta West Project subject to independent audit of the company’s numbers):
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Discovered recoverable quantities (Contingent Resources) may be considered commercially mature, and thus attain Reserves classification, if the entity claiming commerciality has demonstrated a firm intention to proceed with development. This means the entity has satisfied the internal decision criteria (typically rate of return at or above the weighted average cost-of-capital or the hurdle rate). Commerciality is achieved with the entity’s commitment to the project and all of the following criteria:
A. Evidence of a technically mature, feasible development plan.
Pantheon and LKA developed capital and operating cost estimates based on drilling horizontal wells from several pads adjacent to or near the Dalton Highway.
Conceptual Well Lay Out Based on LKA Alkaid Report from Jan 2020
B. Evidence of financial appropriations either being in place or having a high likelihood of being secured to implement the project.
Securing this funding it the reason for the farm out (or other funding approach mentioned by the company). Regardless of the certainty of volumetric estimates, the Contingent Resources could not be considered Reserves unless funding has been secured.
C. Evidence to support a reasonable time-frame for development.
Pantheon has secured approval for year round operations from a well pad adjacent to the Dalton Highway (southern site on the figure above). This would allow development to begin with the Alkaid 2 well planned for summer 2021 (subject to timing of funding). Pantheon has also sourced the Modular Arctic Production System (MAPS), a system of leased units that can be scaled in increments of 5,000 bopd which further reduce the capital sink ahead of first production for 30,000 bopd development case. See the figure below taken from page 18 of http://pantheonresources.com/investors/presentations/653-pantheon-oct-2020-webinar-1/file. The SMD project analysis is actually the Talitha SMD Prospective Resource so do not be confused by the reference to the $2.7 billion NPV10. The point is to illustrate the use of MAPS and what it is: Post image
Cashflow Model by LKA for 300 Mbbl SMD Development
D. A reasonable assessment that the development projects will have positive economics and meet defined investment and operating criteria. This assessment is performed on the estimated entitlement forecast quantities and associated cash flow on which the investment decision is made (see Section 3.1.1, Net Cash-Flow Evaluation).
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