Back On Track - (PANR)
Back On Track
A pleasant surprise from Pantheon Resources (PANR) this morning. The VOBM#3 vertical well in Polk County, close to where they hit problems trying to push a horizontal well through the Eagle Ford sandstone, has come in a little early and below budget. It has found hydrocarbons in 'a potentially significant reservoir' with the unsurprising bonus of gas shows in the Austin Chalk on the way down. So another winner for the Pantheon efforts at cracking the code and finding oil and gas in East Texas.
We don't yet know how good the find might be. That will take three or four weeks - say ten days to get a smaller, lower cost workover rig to the well, plus a couple of weeks for the flow testing. Once that is done, they can get on with lining up the gas processing facility, linking VOBM#1 well in with the current well and setting about producing saleable gas to start generating revenue, hopefully in the first quarter of 2017. Then there could be a serious decision on hiring a second rig to speed up the whole drilling programme to outline just how great the potential of Pantheon's assets might be.
The big rig is going off to Tyler County. The move might take ten days, and the drilling could add a further 60. Hopefully we will be told when it spuds, then when it reaches completion. Then we have maybe ten days or more for testing. So the excitement should start maybe mid to late January. And it really could be exciting, because the next Tyler County well could be tapping into a massive field.
Go back to my report (Pantheon - What You Need To Know) on September 9. This is an extract after listening to a Cheatham interview - ' Cheatham suggests a little simple mathematics here. The new well will step out about four to five miles from the first Tyler County well, which is 4.5 to five miles from LP2, a highly successful well which has generated over $30m revenue (so far) and was drilled near the edge of the basin in 2004 prior to Pantheon's involvement. (see a Pantheon presentation at http://www.pantheonresources.com/index.php/investors/presentations/505-agm-presentation-2015-1/file).
So from LP2 to the proposed centre basin test well is about ten miles. If the new well is to be somewhere near the centre, that suggests the basin could be about twenty miles long. The width varies, but it could be two miles or more, so we appear to have a potential reservoir which covers about fifty square miles.
No wonder Cheatham says the potential reservoir is 'enormous', and that positive results will be 'extremely important' for Pantheon. Be careful. This is unknown territory. Well, it might be unknown to most of us, but the boys who understand these things think they have indications enough to encourage them to be positive. But even they cannot be sure. The drill bit determines it.'
Do be careful. The Tyler well is a big step-out from the last success. But, despite problems along the way, the Pantheon boys have hit four finds out of four so far.
Broker Stifel is sticking to a target share price of 170p, but admits there are many variables. The oil price above $50 a barrel helps, but maybe more crucial is the natural gas price. The bulk of Pantheon's hydrocarbon take so far has been gas rather than liquid. The gas price is just over $3 per million btus, almost double what it was earlier in the year. At Pantheon they have hopes that storage levels have been over-estimated, and the price could go better yet.
After touching 112p, Pantheon shares drifted back to close just below 105p. Anything over 100p suggests there has been sizeable support to absorb the panic selling and forced sales after the horizontal well and fraccing disappointment. As ever, the shares remain speculative, dependent on what the drill determines. So far, that has been first class. Whatever the setbacks, the basic premise remains intact. Hold tight.
I have a holding in Pantheon Resources.