Is Pantheon Resources plc back in business after its latest discovery?

The Motley Fool
Oil well, nodding donkey
Oil well, nodding donkey

Shares in Pantheon Resources(LSE: PANR) are charging higher today after the company informed investors that it had discovered a potentially significant reservoir at its latest oil well in Texas.


Multiple setbacks

Today, Pantheon announced that drilling operations at its vertical VOBM#3 well are now complete. The well has been drilled to a depth of 14,500 feet and data from the well indicates a potentially significant hydrocarbon reservoir in the primary target, the Eagle Ford/Woodbine sandstone.

As yet, Pantheon can't say how substantial the find is, yet the market's reaction to today's news indicates investors believe that after a few setbacks, Pantheon is back in business.

It has already drilled two wells on its Polk County, Texas acreage but both have run into problems. The first, VOBM#1 was completed and delivered a flow rate of around 920 barrels of oil equivalent a year, although most of this production was gas. The second horizontal well, VOBM#2 had to be abandoned after the sandstone proved surprisingly hard, and there was a series of equipment failures. The failure of Pantheon's second well sent a shockwave through the market, and the shares plunged by as much as 40% in a single day.

Third time lucky?

Could it be third time lucky for Pantheon? It looks as if the company has regained some composure from its previous setbacks. Initial indications from the VOBM#3 are good, and the company proclaimed today that once the flow testing on the new well is complete, Pantheon will be in a position to finalise the gas processing facility arrangements and bring both VOBM#1 and VOBM#3 onto production after that.

The more sceptical analysts might claim that the success of VOBM#3 could make or break Pantheon. However, it would seem that VOBM#3 is more likely to build the foundations for Pantheon's growth rather than lead to the company's demise. As today's news release from the company shows, the presence of hydrocarbons at the prospect is clear, it's just the size of the prospect that needs to be established. Results will be announced at the conclusion of testing operations.

City analysts are optimistic. Analysts believe the company will report sales of £12.4m for the year ending 30 June 2017, up from projected sales of £0.2m for the year ending 30 June 2016. On sales of £12.4m for fiscal 2017, City analysts expect the company to report a pre-tax profit of £7.7m or earnings per share of 4.6p, which translates into a forward P/E of 21.1.

The bottom line

Overall, Pantheon's latest discovery is a great surprise for the company's shareholders. When testing is complete the firm will be able to begin commercial production, revenue and profits should follow soon after. Of course, there's still the risk that VOBM#3 could prove to be a dud, which would be another major setback for the business, although if initial indications are to be believed, the chances of this well being a gold mine are high.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.