The Oil Man: Pantheon Resources

Pantheon Resources

I'm on the move a lot this week but, following yesterday's announcement from Pantheon and a useful call to Jay Cheatham, I thought that I should make a few comments, as the market reaction was furious and somewhat overdone.

Both well operations were disappointing, but neither can be classed as dusters, which is what the share price indicated. The frac job only worked the top 27 feet of the available 270 for economic reasons - this is expensive and with less control - but the pressure was there, as were some blockages.

It is still a "Pmean kind of well" and will pay back in 13 months, a time other operators would die for. At $2.25 million (£1.68 million) of capital expenditure, it ticks my box every which way.

As for VOBM#2, the rate of penetration was steady in the vertical and all the right angles were there ready to drill into the zone. Going horizontal proved to be almost impossible to penetrate, as the bit was "drifting and dropping", causing damage to both MWD tools and mud motors.

When it takes 30 hours to replace a bit, it's no wonder that before long they were 45-50 days over in the horizontal. With 1,150 feet out of the 3,000 planned in very hard sandstone, eventually the bit stayed in the reservoir and the company flared 25 feet of gas for a week, proving that hydrocarbons moved.

The plan to save time and money by doing the horizontal would have been spot on, but in the end going back to vertical isn't the end of the world. Expect VOBM#3 and VOBM#1 to hook up with VOBM#2 in due course - and work continues in the rest of the portfolio.

So what have we learned from all this?

For me, I should have smelt a rat when the well was so overdue and advised taking some money off the table earlier, something was clearly wrong. For the company there is no blame in trying the horizontal, as success would have saved time and money.

The process yesterday was, however, an IR and PR disaster and losing over 40% of shareholder value nothing short of inexcusable. The shares will recover and I am not changing my 200p target - but this episode has caused a temporary setback.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.