Editing Pantheon Resources Plc
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The data from Talitha #A has increased confidence in the commercial viability of these zones.<ref name=":1" /> Pantheon remains encouraged by the analysis and sees potential for further exploration and drilling.<ref name=":1" /> The discovery augments the prospectivity of adjacent potential oil-bearing structures, which will be explored in future programs.<ref name=":1" /> | The data from Talitha #A has increased confidence in the commercial viability of these zones.<ref name=":1" /> Pantheon remains encouraged by the analysis and sees potential for further exploration and drilling.<ref name=":1" /> The discovery augments the prospectivity of adjacent potential oil-bearing structures, which will be explored in future programs.<ref name=":1" /> | ||
== | ==== Theta West ==== | ||
Pantheon has concluded drilling at Theta West#1, confirming a discovery of light sweet crude oil.<ref name=":2">https://www.pantheonresources.com/about-pantheon/projects/theta-west</ref> This discovery is now set for extensive production testing.<ref name=":2" /> Theta West stands as Pantheon’s most significant appraisal project.<ref name=":2" /> The company projects its potential to rival the immense hydrocarbon pore volume plays outside the renowned Prudhoe Bay Oilfield in the ANS.<ref name=":2" /> This geological configuration, given its success and volume, can be likened to the deepwater offshore regions in the Gulf of Mexico, West Africa, and recent discoveries off Guyana's coast.<ref name=":2" /> In essence, Theta West is a giant Basin Floor Fan with the potential to hold multibillion barrels of oil.<ref name=":2" /> | |||
Years ago, Pantheon identified this vast geological opportunity and utilised its unique 3D seismic and analytical methodologies to secure a strong position in the Theta West play.<ref name=":2" /> This was strategically done before drilling Talitha #A in 2021.<ref name=":2" /> The Talitha #A drilling confirmed the presence of oil in the Theta West structure. A follow-up drilling at Theta West #1 took place 10.5 miles from Talitha, in a geologically superior position.<ref name=":2" /> To date, three wells — Pipeline State #1, Talitha #1, and Theta West #1 — have successfully tapped into the Basin Floor Fan (BFF) complex.<ref name=":2" /> | |||
The latest Theta West #1 drilling reached a depth of 8,450 feet, navigating through the Upper and Lower Basin Floor Fan target layers of Brookian age.<ref name=":2" /> The drilling revealed approximately 1,160 gross feet of oil reservoir across these horizons.<ref name=":2" /> Preliminary data indicates this reservoir's quality surpasses that of the downdip Talitha #A, with high-quality oil found throughout.<ref name=":2" /> | |||
Key depths recorded are: | |||
* UBFF: 6,800 - 7,000 ft<ref name=":2" /> | |||
* LBFF: 7,450 - 8,410 ft<ref name=":2" /> | |||
These depths exceed previous estimates, and due to external factors such as extreme cold, the company had to rely on Logging While Drilling (LWD) operations.<ref name=":2" /> However, this yielded invaluable data, hinting at hydrocarbon presence higher up from the Talitha #A well.<ref name=":2" /> | |||
AHS/Baker Hughes, the company's partners, have verified the presence of light oil in the UBFF and LBFF's top section, aligning with the LWD data.<ref name=":2" /> The full analysis of LBFF's lower section is still underway.<ref name=":2" /> Initial estimates pegged Theta West #A's potential at 12.1 billion barrels of oil, with a most likely recoverable amount of 1.41 billion barrels on Pantheon's land.<ref name=":2" /> This figure will be re-evaluated after thorough testing and analysis.<ref name=":2" /> | |||
Historically, the Theta West BFF was also successfully drilled in the 1988 Pipeline State #1 well.<ref name=":2" /> More insights were obtained from the Talitha #A well, where the LBFF's substantial thickness was established.<ref name=":2" /> Subsequent testing yielded high-quality oil averaging 73 barrels per day over three days.<ref name=":2" /> | |||
The recent Theta West #1 drilling confirmed expectations of a thicker reservoir at the crest, with increased porosity and permeability.<ref name=":2" /> The site’s shallower depth offers a cost-effective drilling prospect for such a vast resource.<ref name=":2" /> The entire Theta West project spans an impressive 100,000 acres under Pantheon's control, representing a significant opportunity for the company.<ref name=":2" /> Pantheon management considers Theta West as a potentially world-class project in a prime location.<ref name=":2" /> | |||
In broader geological terms, the Theta West BFF is a segment of the Brookian deepwater fan systems.<ref name=":2" /> This includes the Slope Fan system and is situated between the Shelf Margin Deltaic and the Kuparuk Formation in terms of depth.<ref name=":2" /> Both the Talitha #A and Pipeline State #1 wells confirmed these regions as oil-bearing.<ref name=":2" /> Initially thought to be distinct fan systems, recent analysis suggests they might be part of an expansive continuous section, possibly forming a “super trap.”<ref name=":2" /> | |||
=== Strategy === | === Strategy === | ||
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=== Most recent === | === Most recent === | ||
==== Profit and loss ==== | ==== Profit and loss ==== | ||
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|+Profit and loss | |+Profit and loss | ||
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|Currency | |Currency | ||
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|+Balance sheet | |+Balance sheet | ||
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!2022 | !2022 | ||
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|Currency | |Currency | ||
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|Exploration & evaluation assets | |Exploration & evaluation assets | ||
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|Developed oil & gas assets | |||
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|Property, plant and equipment | |Property, plant and equipment | ||
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|Total non-current assets | |Total non-current assets | ||
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| colspan="3" |Current assets | | colspan="3" |Current assets | ||
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|Trade and other receivables | |Trade and other receivables | ||
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|Cash and cash equivalents | |Cash and cash equivalents | ||
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|Total current assets | |Total current assets | ||
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|Total assets | |Total assets | ||
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| colspan="3" |Liabilities | | colspan="3" |Liabilities | ||
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|Convertible Bond – Debt | |Convertible Bond – Debt | ||
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|Trade and other payables | |Trade and other payables | ||
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|Provisions | |Provisions | ||
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|Lease Liabilities | |Lease Liabilities | ||
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|Other Liabilities | |Other Liabilities | ||
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|Deferred tax liability | |Deferred tax liability | ||
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|Total current liabilities | |Total current liabilities | ||
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| colspan="3" |Non-current liabilities | | colspan="3" |Non-current liabilities | ||
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|Lease Liabilities | |Lease Liabilities | ||
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|Convertible Bond – Debt | |Convertible Bond – Debt | ||
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|Convertible Bond – Derivative | |Convertible Bond – Derivative | ||
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|Total non-current liabilities | |Total non-current liabilities | ||
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|Total liabilities | |Total liabilities | ||
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|Net assets | |Net assets | ||
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| colspan="3" |Equity | | colspan="3" |Equity | ||
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|Share capital | |Share capital | ||
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|Share premium | |Share premium | ||
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|Retained losses | |Retained losses | ||
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|Currency reserve | |Currency reserve | ||
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|Share based payment reserve | |Share based payment reserve | ||
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|Non controlling interests | |||
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|Shareholders’ equity | |Shareholders’ equity | ||
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|+Cash flow | |+Cash flow | ||
!Year | !Year | ||
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!2022 | !2022 | ||
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|Currency | |Currency | ||
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|Net outflow from operating activities | |Net outflow from operating activities | ||
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| colspan="3" |Cash flows from investing activities | | colspan="3" |Cash flows from investing activities | ||
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|Interest received | |Interest received | ||
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|Funds used for drilling, exploration and leases | |Funds used for drilling, exploration and leases | ||
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|Developed oil & gas assets | |||
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|Decommissioning Provision (Exploration & Evaluation) | |||
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|Decommissioning Provision (Developed Oil & Gas Assets) | |||
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|Advance for Performance Bond | |Advance for Performance Bond | ||
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|Property, plant and equipment | |||
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|Acquisition of a subsidiary (Great Bear), net of cash acquired | |||
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| | |Acquisition of a subsidiary, (Vision Resources LLC) net of cash acquired | ||
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| | |Disposal | ||
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|Net cash outflow from investing activities | |Net cash outflow from investing activities | ||
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| colspan="3" |Cash flows from financing activities | | colspan="3" |Cash flows from financing activities | ||
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|Proceeds from share issues | |Proceeds from share issues | ||
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|Issue costs paid in cash | |Issue costs paid in cash | ||
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|Proceeds from Convertible Bond | |Proceeds from Convertible Bond | ||
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|Repayment of borrowing and leasing liabilities | |Repayment of borrowing and leasing liabilities | ||
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|Net cash inflow from financing activities | |Net cash inflow from financing activities | ||
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|Increase in cash & cash equivalents | |Increase in cash & cash equivalents | ||
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|Cash and cash equivalents at the beginning of the year | |Cash and cash equivalents at the beginning of the year | ||
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|Cash and cash equivalents at the end of the year | |Cash and cash equivalents at the end of the year | ||
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Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. | Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. | ||
The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to the | The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to the lease obligations. | ||
# '''Lease Obligations:''' The group leases properties for oil and gas exploration, requiring annual payments. Any default can lead to lease termination, which would adversely impact business and financial operations. Pantheon has actively participated in annual lease sales and secured 40,000 leases in November 2022. These leases have a 10-year life and favorable terms.<ref name=":3" /> | # '''Lease Obligations:''' The group leases properties for oil and gas exploration, requiring annual payments. Any default can lead to lease termination, which would adversely impact business and financial operations. Pantheon has actively participated in annual lease sales and secured 40,000 leases in November 2022. These leases have a 10-year life and favorable terms.<ref name=":3" /> | ||
# '''Lease Renewal:''' Leases may be terminated if the group fails to meet specific obligations, like timely exploration. Not renewing these leases can significantly harm the business. However, the group has obtained unitisation for certain projects to possibly extend their initial lease term.<ref name=":3" /> | # '''Lease Renewal:''' Leases may be terminated if the group fails to meet specific obligations, like timely exploration. Not renewing these leases can significantly harm the business. However, the group has obtained unitisation for certain projects to possibly extend their initial lease term.<ref name=":3" /> | ||
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==== What's the expected return of an investment in Pantheon Resources using the relative valuation approach? ==== | ==== What's the expected return of an investment in Pantheon Resources using the relative valuation approach? ==== | ||
Stockhub estimates that the expected return of an investment in Pantheon Resources over the next | Stockhub estimates that the expected return of an investment in Pantheon Resources over the next five years is ccc%, which equates to an annual return of ccc%. In other words, an £1,000 investment in the company is expected to return £ccc in five years time. The assumptions used to estimate the return figure can be found in the table below. | ||
==== What are the assumptions used to estimate the return figure? ==== | ==== What are the assumptions used to estimate the return figure? ==== | ||
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|- | |- | ||
|Which type of multiple do you want to use? | |Which type of multiple do you want to use? | ||
| | |EV/Proved + Probable Reserves | ||
| | |Mainly given the relatively low amount of fixed capital expenditure (as a proportion of revenue) of companies within the consultancy industry (for example, currently, Alpha's fixed capital expenditure as a proportion of revenue is around 0.5%), we suggest valuing the company using the price/earnings ratio. However, we feel that to take into account the different business lifecycle stages of its peers (and, therefore, the different growth stages of its peers), the most suitable valuation multiple to use is the price/earnings to (earnings) growth multiple (or the PEG multiple, for short), rather than the price/earnings multiple. Another multiple which we think it's worth looking at is the (sales) growth-adjusted EV/sales, mainly because the multiple takes into account the different leverage levels of the peers (whereas the PEG does not, at least not directly; one is able to argue that the leverage levels are reflected indirectly in the earnings growth rates). | ||
|- | |- | ||
|In regards to the | |In regards to the PEG multiple, for the earnings figure, which year to you want to use? | ||
|Year 1 | |Year 1 | ||
|Research suggests that when using the relative valuation approach, it's best to use a time period of 12 months or less. Accordingly, for the | |Research suggests that when using the relative valuation approach, it's best to use a time period of 12 months or less. Accordingly, for the earnings figure, we suggest using Year 1, which is 22 pence per share. | ||
|- | |- | ||
|In regards to the | |In regards to the PEG multiple, for the earnings growth figure, which year(s) do you want to use? | ||
| | |Year 2 to 4, from now | ||
| | |We suggest that for the earnings growth figure, it's best to use Year 2 to 4, which equates to a compound annual growth rate (CAGR) of 30%. | ||
|- | |- | ||
| | |In regards to the PEG multiple, what multiple figure do you want to use? | ||
| | |1.04x | ||
| | |Here, we suggest using a multiple of 1.04x, which we believe is in-line with the multiples of Alpha's peers. | ||
|- | |- | ||
|What's the current | |Which financial forecasts to use? | ||
| | |Stockhub | ||
|As at | |The only available forecasts are the ones that are supplied by us (the forecasts can be found in the financials section of this report), so we suggest using those. | ||
|- | |||
|What's the current value of the company? | |||
|£197.46 million | |||
|As at 4th September 2023, the current value of Pantheon Resources Plc is £197.46 million). | |||
|- | |- | ||
|Which time period do you want to use to estimate the expected return? | |Which time period do you want to use to estimate the expected return? | ||
|Between now and one year time | |Between now and one year time | ||
|Research suggests that when using the relative valuation approach, it's best to estimate the expected return of the company between now and one year time. | |Research suggests that when using the relative valuation approach, it's best to estimate the expected return of the company between now and one year time. | ||
|} | |} | ||
{| class="wikitable" | {| class="wikitable" | ||
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The main inputs that result in the greatest change in the expected return of the Pantheon Resources investment are, in order of importance (from highest to lowest): | The main inputs that result in the greatest change in the expected return of the Pantheon Resources investment are, in order of importance (from highest to lowest): | ||
# The | # The growth-adjusted EV/sales multiple (the default multiple ccc); | ||
# | # Pantheon Resources Year 5 sales figure (the default figure is £ccc); and | ||
# Pantheon Resources | # Pantheon Resources Year 6 sales growth rate (the default rate is ccc%). | ||
The impact of a 50% change in those main inputs to the expected return of the Pantheon Resources investment is shown in the table below. | The impact of a 50% change in those main inputs to the expected return of the Pantheon Resources investment is shown in the table below. | ||
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!50% better | !50% better | ||
|- | |- | ||
|The | |The growth-adjusted EV/sales multiple | ||
| | |ccc% | ||
| | |ccc% | ||
| | |ccc% | ||
|- | |- | ||
| | |Pantheon Resources Year 5 sales figure | ||
| | |ccc% | ||
| | |ccc% | ||
| | |ccc% | ||
|- | |- | ||
|Pantheon Resources | |Pantheon Resources Year 6 sales growth rate | ||
| | |ccc% | ||
| | |ccc% | ||
| | |ccc% | ||
|} | |} | ||
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=== Capital structure === | === Capital structure === | ||
The Company has | The Company has 907,206,399 ordinary fully paid shares in issue.<ref name=":5">https://www.pantheonresources.com/investors/capital-structure</ref> | ||
The number of ordinary shares not in public hands amounts to 6,956,691 equivalent to 0.9% of the issued allotted and fully paid ordinary shares.<ref name=":5" /> | |||
This is correct as of 21 June 2023. | |||
==== Share options ==== | ==== Share options ==== | ||
{| class="wikitable" | {| class="wikitable" |