Summary
Pantheon Resources Plc, through its subsidiaries, engages in the exploration and production of oil and gas in the United States. Its primary assets are the Greater Alkaid project that covers 22,804 acres located in Alaska; and the Talitha project covering an area of approximately 44,463 acres. The company was incorporated in 2005 and is headquartered in London, the United Kingdom.
Operations
Team
Market
Financials
Risks
The group may be unable to meet its lease obligations
In general, the group's properties are held under oil and gas leases. The terms of the group's leases often provide for yearly rental payments. Such yearly rentals may vary depending upon the particular lease and whether the group has commenced activities in the property. If the group defaults on its lease payments, its leases may be automatically terminated. If the group is unable to make these payments and its leases are terminated, there could be a material adverse effect on its business, financial condition and results of operations. Managing the lease position is of material importance for the group, and management devote considerable time to lease management, budgeting and planning, consulting with the State of Alaska where required. In 2020 Pantheon was awarded Units on the Alkaid and Talitha projects and has been an active participant in the annual lease sales over recent years, significantly strengthening Pantheon’s lease portfolio. The 40,000 leases successfully bid for in the November 2022 have a 10-year life, $10 per acre rentals and low royalties of between 12.5% – 16.7% to the State of Alaska.
The group may be unable to renew and/or extend its leases once they expire
The group's lease agreements contain terms whereby the lease may be terminated if the group does not fulfil certain obligations. These obligations include conducting exploration and/or production activities. If the group is unable to satisfy these conditions on a timely basis, it may lose its rights in these properties. In addition, given that it may not be able to renew certain leases unless it begins exploration or production activities within specific timeframes, the group may be required to invest significant funds at timetables not optimal in order to meet the capital requirements as per the terms of the leases. If the group is unable to meet its obligations under the terms of its leases, there could be a material adverse effect on its business, financial condition and results of operations. To mitigate this risk the group has successfully applied for and been granted unitization for the leases that comprise its Talitha and Alkaid projects. Unitization recognizes that the group has established, to the State’s satisfaction, that all or part of multiple potential hydrocarbon accumulations are included in the unit areas to allow the leases to potentially be held beyond the initial lease term. Most of Pantheon’s lease position is now covered by these units or leases of between c.7 years or more of remaining life. Management has materially reduced the risk of lease expiry.
The group's operations require it to obtain licensing, planning permissions and other consents
The development of its current and future leases may be dependent upon the receipt of planning permission from the appropriate local authorities, as well as other necessary consents, such as environmental permits and regulatory consents. Obtaining the necessary consents and approvals may be costly, and they may not be granted, may be withdrawn or made subject to limitations and conditions. Certain permits and consents may also become contentious in the future, which may lead to these not being granted or withdrawn. The failure to gain such permissions or gain such permissions on terms or at a cost acceptable to the group, may limit the group in its ability to develop and extract value from its leases and could have a material adverse effect on its business, results of operations, financial conditions and prospects. To manage the risk, the group employs experienced and qualified personnel who have successfully obtained licenses and permits in the past, and who maintain working relationships with regulatory agencies.
Political conditions and government regulations could change and have a material effect on the group's results of operations
Although political conditions in the Northern Slope Borough, the State of Alaska and the United States federal government are generally stable, changes may occur in their political, fiscal and/or legal systems, which might adversely affect the group's operations. The group's strategy has been formulated in the light of the current regulatory environment and probable future changes to the regulatory regime. In 2021 the federal government has adopted a more cautionary position with respect to operations on federal land, notably with respect to ConocoPhillips’ Willow project. Pantheon’s projects are all located on state, not federal land, and so has not been impacted by such politics.
Although the group believes that its activities are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules, laws and regulations will not be enacted, or that existing or future rules and regulations will not be applied in a manner which could serve to limit or curtail exploration or development of the group's business or have an otherwise negative impact on its activities. Amendments to existing rules, laws and regulations governing the group's operations and activities, or increases in or more stringent enforcement, implementation or interpretation thereof, could have a material adverse impact on the group's business, results of operations and financial condition.
Future legal proceedings could adversely affect the group's business, results of operations or financial condition
The group may face legal proceedings that may result in the group having to pay material damages and/or other remedies. While the group would assess the merits of each legal proceeding and defend the group accordingly, it may be required to incur significant expenses or devote significant resources to defend against such legal proceedings. In addition, legal proceedings are also difficult to predict, which may force the group to enter into settlement arrangements even in the absence of any culpability from its part.
Furthermore, the adverse publicity surrounding legal proceedings may negatively affect the group's relation with local communities, government and non-government organizations, which could also impact the group's activities. As a result, legal proceedings could have a material adverse effect on the group's business, financial condition, results of operations and prospects. To manage this risk the group consults legal counsel when it faces potential legal proceedings. The board and management consult legal counsel when conducting activities or entering into agreements that are viewed to have the potential to give rise to material legal proceedings.
Failure to manage relationships with local communities, environmental groups and non-government organizations could adversely affect the group's future growth potential
The activities of oil and gas companies often face scrutiny from the public and receive negative publicity. Although the group's operations are not located in or near large communities, the group's ability to further expand its operation may be hindered by communities that may regard oil and gas activities as detrimental to their environmental, economic or social circumstances. Furthermore, oil and gas companies are also increasingly facing scrutiny by environmental groups regarding the effect operations may have on the animal life in the region. Negative reaction to its operations could have a material adverse impact on the cost, profitability, ability to finance or even the viability of an operation. Such events could give rise to material reputational damage.
These disputes are not always predictable and may cause disruption to projects or operations. Failure to manage relationships with local communities, environmental groups and non-governmental organisations may adversely affect the group's reputation, as well as its ability to commence production projects in certain locations, which could in turn affect its long-term prospects and the group's business, financial condition and results of operations. The group’s current leased acreage is not in the immediate vicinity of any local community. To manage this risk the group ensures it conducts operations in a legal and responsible manner and complies with rules and regulations.
Any change to government regulation/administrative practices may have a negative impact on the group's ability to operate and its future profitability
The business of oil and gas exploration and development is subject to substantial regulation under federal, state, local laws relating to the exploration for and the development of upgrading, marketing, pricing, taxation, and transportation of oil and gas and related products and other matters. Amendments to current laws and regulations governing operations and activities of oil and gas exploration and development operations could have a material adverse impact on the group's business. In addition, there can be no assurance that tax laws, royalty regulations and government incentive programs related to the group's oil and gas properties and the oil and gas industry generally, will not be changed in a manner which may adversely affect the group's prospects and cause delays, inability to explore and develop or abandonment of these interests.
Furthermore, permits, leases, licenses and approvals are required from a variety of regulatory authorities at various stages of exploration and development. There can be no assurance that the various government permits, leases, licenses and approvals sought will be granted in respect of the group's activities or, if granted, will not be cancelled, or will be renewed upon expiry. There is no assurance that such permits, leases, licenses and approvals will not contain terms and provisions which may adversely affect the group's exploration and development activities. If any of the forgoing were to occur, it could have a material adverse effect on the group's business, financial condition and results of operations. To manage the risk, the group employs experienced personnel and contractors who have successfully obtained licenses and permits in the past, and who maintain working relationships with regulatory agencies and monitor changes that could impact the group.
COVID, Supply chain and inflationary risk
The impact of the Covid-19 pandemic on global supply chains is a well-documented phenomenon which has affected many industries globally, including the oil and gas sector. This has been exacerbated by the Russia/Ukraine conflict and the high oil and gas prices which resulted in high demand for equipment, service providers and materials. Additionally, services and materials costs have experienced very high inflation. As a result, the lead times, availability and costs for the equipment and consumables required for drilling in Alaska have increased over the last 12 months. To manage this risk it is important that key equipment and materials are ordered on a timely basis so as to minimise the potential for supply chain disruption to drilling operations, and that well operations are carefully planned, to try to minimise cost inflation where possible.