Last Wednesday, Pantheon Resources Plc (PANR) held a shareholder update presentation in which management presented the results and conclusions from the recent Winter drilling and testing programme, and outlined next steps in the development plan for PANR’s oil assets. (the video of the presentation is available here and presentation materials can be found here.)
True to form, this was another extraordinarily detailed and technical presentation that in my view provides further confidence as to the substantial value of PANR’s enormous, world-class oil resource that is not reflected in its current market cap.
For some perspective, the results of the Winter programme indicate that PANR sits on the what is probably the largest and most significant onshore oil discovery in North America in ~50 years, as Technical Director Bob Rosenthal summarised:
We have made several, significant new light oil discoveries… importantly we have a major upgrade in our confidence that these are huge accumulations, and they represent probably collectively the highest resource density, that’s barrels of oil per unit area discovered on the North Slope, in perhaps all of North America since Prudhoe Bay which was about 50 years ago.
My main takeaways from the ~2.5 hour presentation and Q&A session are as follows:
Management have proven four giant oil reservoirs, now comprising 23.5 billion barrels of oil in place (OIP), consisting of three reservoirs at the Talitha A well, being the Lower Basin Floor Fan (LBFF), the Slope Fan System (SFS) and the Shelf Margin Deltaic (SMD), with the fourth reservoir being the giant Theta West Lower Basin Floor Fan (LBFF)
This 23.5 billion barrels number reflects a significant resource upgrade by management who now estimate that Theta West LBFF contains 17.8 billion barrels OIP (vs. 11 billion previously estimated, a +62% increase), and of which they estimate 1.78 billion barrels are recoverable (vs. 1.2 billion previously, +48% increase).
It’s also worth noting that this latest 23.5 billion barrel OIP number compares to management’s previous estimate of 17 billion barrels as outlined in the January AGM update presentation; however that January OIP total included an estimated 1.4 billion barrels for the Kuparuk reservoir and 1.1 billion barrels for the Theta West Upper Basin Floor Fan (UBFF) - as PANR didn’t test these two reservoirs during the Winter programme (due to time constraints), these have been excluded from this latest 23.5 billion barrel resource number. So assuming further testing confirms the previous Kuparuk and UBFF estimates (a high probability in my view), PANR should have a total OIP resource of ~26 billion barrels.
Management are assuming overall recoverability rates of ~10% - 11% on the 23.5 billion barrels, implying a recoverable oil resource of ~2.35 billion - 2.58 billion barrels. However this recovery rates appears very conservative relative to other oil fields on the Alaskan North Slope - the Tarn Oil Field has demonstrated a 40% recovery rate to date, while the Prudhoe Bay oil field (the largest oil field in North America at ~33 billion barrels OIP), has a recovery rate estimated at over 60%. CEO Jay Cheatham made a notable comment in this regard during the presentation when he said were they to add an additional 5% recovery to the 23.5 billion estimate this would add “over a billion barrels more” of oil recoverable, and suggested the recovery rate could go up to 20% - 30% in time, which obviously implies enormous valuation upside.
Alkaid (a 0.9 billion barrel well, ~77m barrels recoverable) is expected to be production by October, following planned commercial production testing for July - once successfully producing, PANR will be a producing company which will further de-risk the situation.
These latest testing results have further de-risked the overall PANR equity story, with four now-proven reservoirs, an increased resource base and the company on the cusp of production, all in a higher oil price environment that is likely to persist for some time; furthermore the renewed emphasis on energy security and independence following the Russian invasion of Ukraine means PANR’s assets now benefit from increased strategic value given their North American on-shore location.
Finally management re-iterated the strategy is to “Prove up and sell” - they remain open to future farm-in discussions with other partners but the potential terms have now changed in PANR’s favour given that the company is sufficiently well funded to further prove and develop the assets with a view to an exit at the right price - as Justin Hondris, Director of Finance & Corporate Development stated:
We’re … building a proper company .. we’re trying to build a proper, grown-up blue-chip company that’s worthy of attracting institutional investment, that capital will allow us to grow that company and to pursue our strategy of proving up and selling at the right price.
In summary PANR is on track to unlocking a gigantic, world class oil play that implies a valuation that is a multiple of its current market cap. Given this is a material new update, I will be publishing an updated valuation analysis for PANR later this week.
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