Pantheon Resources PLC’s “elephants” have broker excited

Pantheon Resources PLC (AIM:PANR, OTC:PTHRF) has what broker WH Ireland calls a “giant elephant” in the lower basin floor fan of the Theta West structure.

The company’s winter drilling programme has been unambiguously positive for that giant field, in WH Ireland’s opinion. Critically, the 10.5-mile Theta West #1 step-out well, relative to the location of the Talitha A well, came in on prognosis, substantially increasing confidence in the geological model for that field, the broker asserted.

Depth, thickness, reservoir characteristics and petrophysics all confirmed pre-drill expectations, which the broker described as “a truly remarkable and confirmatory achievement”.

“For perspective, the UK’s well-known Brent oilfield (3 billion+ boe [barrels of oil equivalent] recoverable) has a total length of circa 15 miles and a width of circa 4 miles. The offshore Brent field is not an analogue to the onshore stratigraphic ‘resource plays’ being developed by Pantheon Resources; nevertheless, it helps provide a scope of reference to appreciate the sheer scale of the Theta West #1 step-out well,” WH Ireland said.

As a result of the drilling programme, Pantheon Resources increased its oil in place estimate for the Lower Basin Floor Fan of the Theta West structure by 61% to 17.8 billion barrels of oil and its recoverable resource estimate by 48% to 1.78 billion barrels of oil.

“Under a success case, we believe there is considerable scope remaining for the recoverable resource estimate to be revised upwards. Having just completed drilling and testing, we highlight that the company’s resource estimates are management estimates. For reference, production testing from the Lower Basin Floor Fan of the Theta West Structure has been unambiguously encouraging, in our opinion, with the formation flowing at a rate of 57 b/d [barrels per day] of oil from the Theta West #1 well and at 42 b/d of oil from the Talitha A well,” WH Ireland continued.

Moving on to the Alkaid#2 appraisal well – a “baby elephant” in WH Ireland’s parlance – it has been ascribed a 76.5mln barrel recoverable contingent resource estimate by a third-party consultant.

The Alkaid#2 is not, in the broker’s 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,” WH Ireland said.

Nevertheless, the broker is excited by the well.

“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.

“Based on investor discussions and market commentary we would caution against putting the cart ahead of the horse due to the rather extraordinary ease with which Pantheon Resources is able to monetise oil production from its wells. In our opinion, an appraisal well is an appraisal well, even if its production is monetised,” WH Ireland said in a note initiating coverage of Pantheon.

The broker has upped its fair value estimate for Pantheon Resources to 209p per share from 184p previously. Currently, Pantheon’s shares trade at 104.5p, up 0.5% on the day.

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