Pantheon Resources (LSE:PANR) is an oil exploration firm. Listed on the AIM 100 index, the company operates in Alaska’s North Slope area. Its primary assets are Alkaid, measuring nearly 23,000 acres, and Talitha, which is about 44,000 acres. Since yesterday, the PANR share price is down 20% and currently trades at 105p. What’s the reason for this fall? And should I add to my current holding on this dip?
Why did the PANR share price fall?
Investment firm Peel Hunt initiated coverage of the business yesterday and immediately placed a ‘sell’ rating on the stock.
What’s more, it issued a price target of 50p. This is far below the current PANR share price and may be a reason for the large fall today and yesterday.
In the coverage, it cited recent flow rates and other, more historical factors. This includes the decision by a large oil firm to farm-in, that is to enter an agreement, with competitor 88 Energy in 2017, as opposed to Pantheon.
It’s worth noting that 88 Energy has acreage and operations right next to Pantheon, in Alaska.
In terms of financial results, Pantheon did report widening losses of $4.4m for the six months to 31 December. However, its cash position has improved massively to $92.7m, up from $29.8m one year earlier.
I don’t think these financial results as a reason for the recent price fall.
Large oil discoveries and near-term production
When investing in oil exploration companies, however, I like to look beyond financial results and analyse the extent of their discoveries. Recently, investment bank Canaccord Genuity raised its target price to 280p.
This followed the announcement by Pantheon that it may have 23.5bn barrels of oil in place. Even with a conservative estimate of 10% recoverability rates, this potentially amounts to well over 2bn barrels of oil for production.
With this production set to commence in October, revenue from these discoveries may come sooner rather than later.
In addition, the firm had a successful winter drilling programme at its Talitha and Theta West wells, although bad weather halted operations on a few occasions.
Summer drilling programme
The company announced this week that it had concluded a rig contract to drill at the Alkaid #2 well. Spudding, the initial drilling, will commence in July.
Through complex analysis, the business believes that the oil zone in this well is “substantially thicker” than previously thought.
It’s possible that this well could have 2.6bn barrels of oil in place. It’s estimated that about 400m barrels could be recoverable. If recovered, this may be very good news for the PANR share price, as more oil enters into production.
It should be noted, however, that the nature of exploration can mean that recovery rates may be lower than estimated.
Overall, this correction to the PANR share price may seem like a big move down in the short term. However, given the substantial amounts of oil that may be in place, I think the company could soon flourish as oil production begins later in the year. I see this recent price movement as a good opportunity to add to my portfolio and I will be purchasing more shares soon.
