REG - Pantheon Resources - Operational Update

Pantheon ResourcesAnnouncement

28/07/2023 07:00

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RNS Number : 4873H  Pantheon Resources PLC  28 July 2023

 

28 July 2023

 

Pantheon Resources plc

Operational Update

 

Pantheon Resources plc ("Pantheon" or the "Company" or the "Group"), the
AIM-quoted oil company developing its 100% working interest in the Ahpun and
Kodiak Fields with expected Ultimate Recovery ("EUR") of approximately 2
billion barrels of contingent resources of marketable liquids adjacent to
transportation and pipeline infrastructure on State Land on the Alaska North
Slope, is pleased to provide an operational update and refined management
estimates of preliminary development costs for the Ahpun field.

 

Highlights

 

·   Pantheon expects to receive an Independent Expert Report from
Netherland, Sewell & Associates on recoverable resources from the Kodiak
field in August 2023.

·   Planned date of September 2023 for mobilisation of workover rig for
conducting the frac of the Shelf Margin Deltaic Zone.

·   Management modelling of the economics for 20 well development pads
estimate robust returns with valuations of $6-$8 /bbl ANS and rates of return
of 33%-53% at ANS prices(1) of $70-$80 /bbl ANS respectively.

·    Analysis of the fluid composition from the Alkaid-2 test indicates
that the reservoir pressure is below the bubble point and therefore there is
free gas in the reservoir, but no free gas cap.

 

Independent Recoverable Resource Estimates

 

Netherland, Sewell & Associates ("NSAI") is presently completing its
Independent Expert Report ("IER") on the Kodiak field and is expected to
provide its independent assessment of the recoverable resources from Kodiak
during August 2023. Following completion of the Kodiak IER, NSAI will prepare
an IER on the Alkaid Zone within the Ahpun field which the Company estimates
will be finalised in autumn 2023.

 

Alkaid-2 Shelf Margin Deltaic Test

 

The primary contractors have now confirmed availability of sufficient pumping
horsepower at acceptable service rates, and a suitable workover rig has been
identified, which, subject to execution of contracts, would have a planned
date for mobilisation in September 2023. However, the precise start-up of
operations will be refined nearer the time.

 

The Alkaid-2 re-entry is designed to gather the best possible reservoir fluid
samples for pressure-volume temperature ("PVT") analysis and to test the
improvements in the frac design discussed in recent Company webinars.

 

Pantheon Executive Chairman, David Hobbs, said: "Netherland Sewell and
Associates have advised that they require a little more time to incorporate
all of the additional acreage and the newly developed understanding of the
reservoir fluid composition. We support their desire to provide the most
robust report possible and are happy to allow further time. We are pleased to
be on track to begin the Alkaid-2 re-entry during September/October as
originally planned."

 

Well Pad Level Costs and Economics - Management Estimates (2)

 

In recent webinars, management has outlined the factors supporting its
modelling, including estimates for individual wells costs of $13 million (in
2023 real terms) for drilling and completion of a multi-stage fracked, 10,000
feet ("ft") lateral production well in a development scenario.

 

Preliminary estimates of the costs to build each well pad, capable of
supporting a minimum of 20 wells (15 producers and 5 injectors), are less than
$5 million each. Costs for upgrading the existing production facilities
installed on the Alkaid well pad in 2022 (including chiller units for liquids
recovery from the gas produced in association with the oil) are estimated at
$20 million. Growth in capacity is estimated to cost less than $1 million per
1,000 barrels per day ("bpd") based on the Company's experience with the
initial unit. Cost for the hot tap into the Trans Alaska Pipeline System
("TAPS") main oil pipeline is estimated to be $20 million. Pantheon will
design the connection with sufficient capacity to handle the entire production
of Ahpun and Kodiak, anticipated to reach more than 200,000 bpd of marketable
liquids at peak. Operating cost estimates amount to some $7 million per year
per pad at peak production.

 

Modelled results for the first 20 well pad (including the one off cost of the
TAPS tie in) with an EUR of 18 mmbbl ANS and peak production of 8,000 bpd of
marketable liquids illustrate the following results:

 

NPV10 ($70/bbl constant real ANS
Price):                      $103 million with 33% IRR

NPV10 ($80/bbl constant real ANS
Price):                      $150 million with 52% IRR

 

These well pad level economics anticipate a cash sink for the first pad of
some $70 million. However, allowing for potential cost over-runs on the
initial wells, corporate overheads and the optimum development being based on
simultaneous operations on the first two pads, management estimates are for up
to $350 million of funding required to achieve financial selfsufficiency, as
previously outlined. This figure also incorporates three appraisal wells on
the Kodiak field prior to its FID, expected in 2028. The estimates demonstrate
considerable flexibility in optimising the funding requirements based on the
cost of financing and the Company's determination to minimise value dilution
for existing shareholders between now and achieving financial
self-sufficiency.

 

Jay Cheatham, Pantheon CEO, added: "Sharing our cost estimates allows
investors to understand the robust economics that our Ahpun development can
deliver. When staged development proceeds, adding new pads and production
capacity funded from the cashflows of the early pads, the modelled returns
demonstrate why we are confident in our ability to achieve our targeted
objective of delivering sustainable market recognition of $5-$10 per barrel of
recoverable marketable liquids by 2028."

 

Alkaid-2 Well Test Results - Reservoir Fluid Composition

 

The Company is pleased to share the results of its recently completed analysis
of the fluid composition from the Alkaid-2 production test. This suggests that
the reservoir pressure is below the bubble point and there is therefore free
gas in the reservoir and is likely not a result of a   free gas cap. Rather,
the gas is distributed throughout the pore space. This analysis has now been
incorporated into the SLB Static and Dynamic Models. Further details can be
found in the Appendix below.

 

Pantheon Technical Director, Bob Rosenthal, said: "It has required some six
months of painstaking technical analysis and consideration of all valid
technical theories to develop an understanding and to identify analogues for
the fluid composition that was delivered by the Alkaid-2 flow test. We are
grateful to Geomark, SLB, Baker Hughes AHS, eSeis, NSAI and others for the
collaborative effort that has moved us forward along our path to successful
development of the Ahpun and Kodiak Fields."

 

-ENDS-

 Further information, please contact:

 

 Pantheon Resources plc                                       +44 20 7484 5361
 David Hobbs, Executive Chairman

 Jay Cheatham, CEO
 Justin Hondris, Director, Finance and Corporate Development

 Canaccord Genuity plc (Nominated Adviser and broker)
 Henry Fitzgerald-O'Connor, James Asensio, Gordon Hamilton    +44 20 7523 8000

 BlytheRay
 Tim Blythe, Megan Ray, Matthew Bowld                         +44 20 7138 3204

 

 

Notes to Editors

 

Pantheon Resources plc is an AIM listed Oil & Gas company focused on
developing the Ahpun and Kodiak fields located on the North Slope of Alaska
("ANS"), onshore USA where it has a 100% working interest in 193,000 acres.
These fields support expected ultimate recovery of contingent resources
amounting to some 2 billion barrels of marketable liquids to be delivered
through the Trans Alaska Pipeline System ("TAPS"). Pantheon's stated objective
is to deliver a sustainable market recognition of a value of $5-$10/bbl of
recoverable resources by end 2028. This will require targeting Final
Investment Decision ("FID") on the Ahpun field by the end of 2025, building
production to 20,000 barrels per day of marketable liquids into the TAPS main
oil line through a hot tap, and applying the resultant cashflows to support
the FID on the Kodiak field by the end of 2028.

 

A major differentiator to other ANS projects is the close proximity to
transport and pipeline infrastructure which offers a significant competitive
advantage to Pantheon, allowing for materially lower capital costs and the
ability to support the development with a significantly lower pre-cashflow
funding requirement than is typical outside the US lower 48 states.

 

Appendix

 

(1)ANS Price is the price of Alaska North Slope crude loaded at Valdez and
delivered to a US West Coast Refinery.

 

 

Following extensive analysis and comparison with analogous reservoirs
elsewhere in the world, management believes that it is possible to discount a
free gas cap in the Ahpun field as a valid explanation for the well
performance. Instead, the most likely explanation for the persistently higher
than anticipated production of gas is that the pressure in the reservoir is,
at least at its most up dip locations, below the bubble point - the pressure
at which gas breaks out of solution. This has likely occurred because the
reservoir fluids reached an equilibrium (at bubble point) at the maximum
depth of burial and, through subsequent uplift over geological time, the
reservoir pressure is no longer above the bubble point.

 

The quality of the reservoir rocks has not permitted the gas to accumulate in
the crest of the structures and it therefore exists in discontinuous gas
bubbles surrounded by oil and water locked in the matrix of the
reservoir. As wells are produced, the pressure drop will cause the gas
bubbles to expand, providing the unexpectedly high levels of reservoir energy
that caused the wells to flow without any indication of requiring gas lift.

 

This interpretation of the well results supports the Company's conservative
assumption that production wells will deliver the same compositional mix in
terms of oil, condensate, NGLs and natural gas as observed in this flow test.
This has been applied across the portfolio, including in the work conducted by
SLB in constructing the static and dynamic models that Pantheon will use in
its development planning work.

 

* Indicative Field and Individual Well Economics are derived by management on
a conceptual development model for illustrative purposes only. The Directors
assess the fields as being commercial and this is the reason the Company is
seeking development approvals and to achieve FID. However, projections of
value depend on factors including but not limited to expected oil prices,
equipment and service costs, well outcomes, funding risk, fiscal terms and
scheduling of investments.

 

The information contained within this announcement may be considered inside
information prior to its release.

Cautionary Statement: Certain statements and estimates contained in this
announcement carry an associated risk of accuracy as such statements and
estimates are based upon projections made from information available at the
time of making such statements. Actual results could differ materially from
expectations or estimates set out in such statements. Among other factors,
this could be as a result of changes in economic, market, engineering, fiscal
and political factors, the success of future drilling and geological success,
the risk of future drilling changes in the regulatory environment and other
government actions, funding risk and assumptions, fluctuations in the price of
oil and exchange rates, and business and operational risk management.

 

 

 

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