20 November 2017 13:36:39


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Eyes on the Prize - (PANR)
14/6/2017 (119264)

Eyes on the Prize

It served me well last month being forced to fly to distant lands and suffer the indignities of falling into the water as Maggie sped past on her wind surfer it kept me from floundering around the latest operational update from Pantheon Resources (PANR).

Two weeks later, it is easier to avoid getting too tangled in the detail of flowing and fracking, stray cement and silica fines, and to keep eyes on the prize. A combination of bad luck, questionable decisions and downright dumb service providers has ensured that Pantheon has fallen way behind when it comes to getting oil or gas out of the ground and up for sale, but there has been no mistake when it comes to what is normally the most difficult bit for oil companies - finding the stuff.

Maybe some will still worry that Pantheon has not cracked the code and worked out a way of discovering where the rich deposits are deep down under Texas, but most must concede that they have done pretty well. Five wells drilled so far, six or seven discoveries. The boys do not have perfect vision by any means they have been surprised on the upside. No-one was reckoning on at least two of the highly promising finds they drilled into on the way down.

If the promise is realised, the unofficial estimate that Pantheon could be worth 500p a share and then some still holds good, despite the delays and difficulties which have helped send the shares down from over 180p to test the low fifties, closing tonight at 56.75p to 58.5p.

The mood might be about to change. There is little better to make sceptical shareholders start to shift their position than the sight of cash flowing into company coffers. Operational delays always gobble up money, eat away at capital, and spark fears about fund-raising and equity dilution or worse. But money coming in is always good.

Happily for Pantheon, it looks as if plans to build and operate a gas processing facility in Polk County have been going well. Late in May the company confirmed that much of the preparatory work had been done, and there were plans to be in production by late August/early September. All of the signs suggest that this is on track, and we might hear more in the next few weeks.

Such a facility could generate over $1.6m a month of free cash flow net to Pantheon (after royalties and production taxes). In other words, it is a real $1.6m cash for the company each month. If the plant does come in on time, full throughput will not be attained immediately, but the company could be taking in perhaps $1.25m a month very soon. The VOBM number 1 well alone has tested flow rates which could generate $700,000 free cash flow per month, but that could be stepped up by using a larger choke aperture than in the test. And VOBM number 3 is waiting to come on stream.

That transforms the finances, and ought to remove any concerns about needing a fund-raising to push ahead with the programme of drilling more wells (though who is to say that a little dilution at some stage to speed the drilling programme might be too bad?). The projection was of $4.7m cash on hand at the end of May. There ought to be no problem in meeting Pantheons share of costs on the two highly promising prospects where the company has to overcome previous problems - VOBMnumber4 in Tyler County which hit the unexpected Wilcox formation and VOBM number2 in Polk County, between the two earlier commercial discoveries.

The objective is to create a self-financing drilling programme and to keep equity dilution to a minimum. A stand-alone Wilcox well could cost $2.5m and vertical Eagleford sandstone well in Polk County is estimated at $4.5m. Pantheon has 50% of VOBM number 4, so would need to find $1.25m, and 58% of the Eagleford wells, and so would need to contribute $2.6m. Check the Pantheon presentation at http://www.pantheonresources.com/index.php/investors/presentations

After adding the Wilcox opportunities, which have very substantial potential by reference to adjoining discoveries and long term production by other companies, and finding the Navarro prospect deep in well VOBMnumber 4, all alongside the original Eagleford sandstone and Austin Chalk prospects, Pantheon is inevitably attracting attention in the industry. There is keen interest in everything going on in the Permian Basin, and Pantheons very low costs make it an attractive proposition especially since the avowed intention remains to prove up more assets then sell the company to an established operator.

As that strategy unfolds, supported by cash flow enough to finance new wells, Pantheon ought to bounce nicely in the months ahead. The operating history so far has been unfortunate, but the asset position has only grown stronger. Current depressed share levels offer an opportunity for the brave. For holders there could be much happier times ahead in the next six months.

I have a holding in Pantheon.

Ends


  More on (PANR)
Previous Stories
Mike on (PANR)
15/11/2017 Happy Christmas ahead at Pantheon.
7/11/2017 All going well at Pantheon.
11/10/2017 Pantheon going well.
29/9/2017 Useful update from Pantheon.
14/9/2017 Pantheon back on track.
28/7/2017 Pantheon raises money.
14/7/2017 Pantheon close to cash flow.
14/6/2017 Better prospects at Pantheon.
24/5/2017 Broker reports on Pantheon Resources.
31/3/2017 Pantheon's troubled progress.
15/3/2017 Delays for Pantheon.
30/12/2016 Pantheon finds two more prospects.
19/12/2016 The Pantheon meeting.
6/12/2016 Hanging on to Pantheon.
30/11/2016 A re-run of the complete Pantheon comment from Nov 29.
23/11/2016 The big one to come at Pantheon.
25/10/2016 Another winner from Pantheon.
13/9/2016 What to do about Pantheon and DJI.
9/9/2016 Where we are now on Pantheon.
5/9/2016 Pantheon disappoints.


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