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Pantheon Resources Plc
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== Risks == As with any investment, investing in Pantheon Resources Plc carries a level of risk. Overall, based on the Pantheon Resources Plc's adjusted beta (i.e. 0.55)<ref name=":4">Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, it’s best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref>, the degree of risk associated with an investment in Pantheon Resources Plc is 'medium'. 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 ability to adequately source sufficient funding to meet the company’s working capital requirements (i.e. liquidity risk). # '''Liquidity Risk:''' The primary liquidity risk is the ability to adequately source sufficient funding to meet the company’s working capital requirements. Funding availability, and hence risk, within the capital markets remains volatile.<ref name=":3" /> # '''Oil & Gas Price Risk:''' Future oil and gas sales revenues are subject to the volatility of the underlying commodity prices throughout the year. Over the past year the energy sector has been impacted by volatility in commodity prices, which may continue to impact the group going forward.<ref name=":3" /> # '''Currency Risk:''' Most capital expenditures for the year (and future years), as well as possible future operational revenues from oil sales were or will be denominated in US dollars. The group keeps the majority of its cash resources denominated in US dollars to minimise volatility and foreign currency risk.<ref name=":3" /> # '''Credit Risk:''' The group’s credit risk is primarily attributable to its cash balances. The credit risk on liquid funds is limited because the third parties are large banks with a minimum investment grade credit rating. The group’s total credit risk amounts to the total of other receivables and cash and cash equivalents.<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" /> # '''Licensing and Permissions:''' The group needs various approvals for developing their leases. Failure to obtain these permissions can hamper the group's ability to operate. To counter this, the group employs personnel experienced in navigating regulatory requirements.<ref name=":3" /> # '''Political and Regulatory Changes:''' Changes in the political environment, particularly in the Northern Slope Borough, Alaska, and the U.S., can adversely affect operations. New regulations or stricter enforcement of current ones can pose challenges. However, Pantheon's projects are on state lands, thus less affected by federal policy changes.<ref name=":3" /> # '''Legal Proceedings:''' The group might face legal challenges that can be costly and can damage its reputation. They engage with legal counsel proactively to mitigate potential risks.<ref name=":3" /> # '''Relationships with Stakeholders:''' The oil and gas sector often faces scrutiny. Failure to manage relationships with communities and environmental groups might adversely affect the group’s reputation and operations. The group endeavors to conduct operations responsibly and legally.<ref name=":3" /> # '''Regulatory Changes:''' Amendments to existing laws regarding oil and gas exploration could adversely affect the group's business. They continuously monitor potential regulatory shifts and maintain relationships with regulatory agencies.<ref name=":3" /> # '''Supply Chain Disruptions:''' Global events, like the Covid-19 pandemic and the Russia/Ukraine conflict, have affected the supply chain and caused inflation. The group plans its operations meticulously and orders equipment in advance to minimise disruptions.<ref name=":3" />
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