Pantheon Resources just announced the start of drilling the Alkaid-2 well in Alaska.
A potentially pivotal well promises to seal what could be a major new multibillion-dollar oil asset on American soil.
The success of a series of earlier wells has given Pantheon a very significant valuation – peaking at around £1bn just before the shares slipped into a bear market – and today’s price of 89p gives it a market capitalization of almost £700m.
However, Pantheon is not the only one hoping for a good result.
Performance: The success of a series of previous wells has driven Pantheon to a very significant valuation – peaking at around £1bn just before the stock slipped into a bear market.
Based in Alaska 88 Energy is his neighbor and lives somewhat separately through the project. If Alcoid-2 can deliver on some of its promises, 88 Energy should win as well.
Exploration experts, both domestic and foreign, believe that the region known as Alaska’s North Slope has very large reserves of oil.
The Pantheon project area is located away from previous onshore discoveries such as Prudhoe Bay (estimated to have approximately 33 billion barrels of oil) and Kuparuk/West Sac (14 billion barrels of OIP).
As the drill bit began to spin in the Alkaid-2 well, CTO Bob Rosenthal emphasized that the AIM-quoted explorer had already “discovered a lot of oil” in his project area.
To date, the volume of oil in place is estimated at 23 billion barrels, of which 2.3 billion are currently considered potentially recoverable.
A successful reservoir test at greater depth at the location is likely to increase the known extent of the resource, according to WH Ireland oil and gas analyst Brendan Long.
Long, who estimates his “fair value” for Pantheon at around 208p (against today’s price of 89p), also points to other important aspects of Alkaid.
The successful Pantheon wells in Alaska to date have been vertical test wells designed to confirm the presence of hydrocarbons and collect valuable data, but any future field development will include horizontal production wells.
Chief executive Jay Cheetham (second from right) “We have collected enough data to support our expectations that we have discovered and have now estimated an extensive resource that we believe meets or exceeds our previous estimates.”
Alkaid will be the first Pantheon to go horizontal. Wells drilled in this way greatly increase the surface area to which the wellbore is exposed and, as a consequence, much larger volumes of oil can be recovered.
Alkaid-1, Pantheon’s first vertical well in Alaska, was drilled in 2015 and produced about 100 barrels per day during testing in 2019.
That would seem a far cry from the nearly £700m valuation currently seen in the market, but the company’s point of view has always been clear.
“Pantheon is on track to open up a huge pool game,” Rosenthal said in March.
“It has the ability to develop a number of large, restrained oil fields in an established oil province adjacent to export infrastructure, which we believe is unique.”
Jay Cheetham, chief executive, added: “We have collected enough data to support our expectations that we have discovered and now estimate an extensive resource that we believe meets or exceeds our previous estimates.”
The statistics of higher production from a horizontal well such as Alcoid 2 will be indisputable and will certainly be of great importance in strengthening the commercial case for developing oil fields throughout the Pantheon area of Alaska.
In a recent note, WH Ireland described the previous drilling campaign as “unequivocally positive” and called the lower basin floor fan (seen in an earlier well called Theta West) a “giant elephant”.
This underpins Long’s fair value estimate of 208p and suggests upside potential of more than 100 per cent.
Alcoid-2, meanwhile, is a “baby elephant,” according to Long, adding that he doesn’t think it’s a good thing.
“In our view, there is zero chance that any result at Alkaid will dampen our enthusiasm for the grand prize, the Theta West design pool bottom fan.
“For us, we are most interested in understanding the behavior of the reservoir flow over time.
“If this behavior is encouraging, we are confident that both initial production rates and expected ultimate recovery per well can be increased over time by drilling longer wells and fracking more intensively.”
Meanwhile, many UK small-cap investors are likely to have been introduced to Alaska’s North Slope through 88 Energy.
The exploration company has been operating in Alaska since 2015 and has attracted a lot of attention and speculation for its exploits at various times.
It has drilled a number of wells and expanded its own acreage, although so far its results have been less “unequivocally positive” than Pantheon’s, to borrow WH Ireland’s phrase.
While 88 Energy continues to develop other exploration interests in the region (Icewine Project, Project Peregrine, Umiat and Yukon projects), right now its neighbor’s activity is the most influential catalyst for the company.
According to 88 Energy, this is more than an exercise in “neurology.”
Company-commissioned studies determined that geologic features observed by Pantheon in its wells extend into part of the Icewine property.
This desk work should culminate in a data package to support the off-farm process, which the company hopes will lead to a new partner and funding for future research.
88 Energy (0.55p share) says it wants to drill a well to test those targets in 2023.
Such a schedule. 88 Energy shares are likely to follow Pantheon’s near-term success, and so its well program will be closely monitored by its investors.
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