SMALL CAP IDEA: Pantheon Resources


Pantheon Resources has just announced the start of drilling at the Alkaid-2 well in Alaska.

The potentially pivotal well promises to put a rubber stamp on what could become a major new multi-billion barrels oil asset on American soil.

Success with a series of previous wells has sent Pantheon to a very substantial valuation – peaking at around £1billion immediately before equities slipped into a bear market and today’s price of 89p pitches the market cap at close to £700million.

It’s not just Pantheon that is hoping for a good result, however.

Performance: Success with a series of previous wells has sent Pantheon to a very substantial valuation – peaking at around £1billion immediately before equities slipped into a bear market

Alaska-based 88 Energy is its neighbour and living somewhat vicariously through the project. If Alkaid-2 can deliver some of its promise 88 Energy should benefit too.

Exploration experts, internal and external to the company, believe there are very large accumulations of oil in the region known as Alaska’s North Slope.

Pantheon’s project area is located further onshore from previous coastal discoveries such as BP’s Prudhoe Bay (estimated to have some 33 billion barrels of oil in place) and Kuparuk/West Sak (14 billion barrels OIP).

As the drill-bit began turning in the Alkaid-2 well, technical director Bob Rosenthal highlighted that the AIM-quoted explorer had already ‘discovered a lot of oil’ so far in its project area.

To date the oil-in-place volume is estimated at 23 billion barrels, with 2.3 billion of those presently deemed as potentially recoverable.

Successfully testing reservoirs at greater depth, in this location, is likely to increase the known scale of the resource, according to WH Ireland’s oil and gas analyst Brendan Long.

Long, who pitches his ‘fair value’ estimate for Pantheon at some 208p (versus today’s price of 89p), also points to other important aspects of Alkaid.

Pantheon’s successful Alaskan wells to date have all been vertical test wells, designed to confirm the presence of hydrocarbons and gather valuable data, but any future development of the fields will comprise horizontal production wells.

Chief executive Jay Cheatham (second from right) 'We have collected enough data to confirm our expectations that we have discovered, and now appraised, an extensive resource which we believe meets or exceeds our pre-drill estimates'

Chief executive Jay Cheatham (second from right) ‘We have collected enough data to confirm our expectations that we have discovered, and now appraised, an extensive resource which we believe meets or exceeds our pre-drill estimates’

Alkaid will be Pantheon’s first to go horizontal. Wells drilled this way massively increase the surface area to which the well bore is exposed and, as a result, mean much higher volumes of oil can be produced.

Alkaid-1, Pantheon’s first vertical discovery well in Alaska, was drilled in 2015 and flowed around 100 barrels a day during a 2019 test.

That would look a long way removed from the near £700million valuation currently seen in the market but the company’s point of view has always been clear.

‘Pantheon is on the path to unlocking an enormous basin play,’ Rosenthal said in March.

‘It has an opportunity to develop a number of large, discreet oil accumulations in an established oil province adjoining export infrastructure, which we believe is unique.’

Jay Cheatham, chief executive, added: ‘We have collected enough data to confirm our expectations that we have discovered, and now appraised, an extensive resource which we believe meets or exceeds our pre-drill estimates.’

Higher volume production statistics from a horizontal well like Alkaid-2 will be undeniable, and, of course, will go a long way to shoring up the commercial case for developing oil fields across Pantheon’s acreage in Alaska.

In a recent note, WH Ireland described the previous drill campaign as ‘unambiguously positive’ and called the Lower Basin Floor Fan (seen in an earlier well called Theta West) as a ‘giant elephant.’

This is the basis of Long’s 208p fair value estimate and suggesting more than 100 per cent upside.

Alkaid-2, meanwhile, is ‘a baby elephant’ according to Long, adding it is not, in his opinion, a make or break well.

‘In our opinion, there is zero chance that any result at Alkaid would reduce our enthusiasm for the main prize, the Lower Basin Floor Fan of the Theta West structure.

‘For us, we are most interested in gaining an understanding of the reservoir’s flow behaviour over time.

‘If that behaviour is encouraging, we have confidence that both initial production rates and expected ultimate recoveries per well can be scaled up over time by drilling longer wells and fracking them more intensely.’

Many of the UK’s small-cap investors, meanwhile, were likely introduced to Alaska’s North Slope via 88 Energy.

The exploration company has had an acreage position in Alaska since 2015 and has at different times garnered an awful lot of attention and speculation with its exploits.

It has drilled a number of wells and has progressed its own acreage, albeit thus far its results have been less ‘unambiguously positive’ than Pantheon’s, to borrow WH Ireland’s phrasing.

While 88 Energy continues to progress its other exploration interest in the region (across its Project Icewine, Project Peregrine, the Umiat and Yukon projects), right now the activity of its neighbour is the most impactful catalyst for the company.

According to 88 Energy this is more than an exercise in ‘nearology’ though.

Studies commissioned by the company have determined that geologies observed by Pantheon, in its wells, crossover into a section of the Icewine territory.

This desktop work is intended to culminate in a data package to support a farm-out process, which the company hopes will bring in a new partner and funding for future exploration.

88 Energy (shares priced at 0.55p) says it wants to drill a well to test these targets in 2023.

Such is the timeline 88 Energy shares are likely to follow the near-term fortunes of Pantheon and therefore its investors will keep a very close eye on the well programme.

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