Im on the move a lot this week but following yesterday’s announcement from Pantheon and a useful call to Jay Cheatham I thought that I should make a few comments as the market reaction was furious and somewhat overdone.
Both well operations were disappointing but neither can be classed as dusters which is what the share price indicated. The frac job only worked the top 27′ of the available 270 for economic reasons, this is expensive and with less control but the pressure was there as were some blockages but it is still a ‘Pmean kind of well’ and will pay back in 13 months, a time other operators would die for. At $2.25m of capex it ticks my box every which way.
As for VOBM#2 the rate of penetration was steady in the vertical and all the right angles were there ready to drill into the zone. Going horizontal proved to be almost impossible to penetrate as the bit was ‘drifting and dropping’ causing damage to both MWD tools and mud motors. When it takes 30 hours to replace a bit it’s no wonder that before long they were 45-50 days over in the horizontal. With 1,150′ out of the 3,000 planned in very hard sandstone eventually the bit stayed in the reservoir and the company flared 25′ of gas for a week proving that hydrocarbons moved. The plan to save time and money by doing the horizontal would have been spot on but in the end going back to vertical isn’t the end of the world. Expect VOBM#3 and VOBM#1 to hook up with VOBM#2 in due course and work continues in the rest of the portfolio.
So what have we learned from all this? For me I should have smelt a rat when the well was so overdue and advised taking some money off the table earlier, something was clearly wrong. For the company there is no blame in trying the horizontal as success would have saved time and money. The process yesterday was however an IR and PR disaster and losing over 40% of shareholder value nothing short of inexcusable, the shares will recover and I am not changing my 200p target but this episode has caused a temporary setback.
I am interested in the figure you gave for payback on the Pantheon well VOS#1 of 13 months. Would you care to expand on the assumptions you have made to calculate that figure. I have tried to work it back with a combination of the RNS production rates, the capaex figure you gave and Royalty -25%, local tax – 7.5%, and opex $1/boe without success. Would appreciate your help.
Thanks in advance.
Hi Allen, to be fair i am using fairly broad brush numbers that i have used when looking at these wells before and that can be risky. However when i spoke to Jay on monday evening i put it to him that previously these wells would payback in around 8 months to which he agreed and validated my, admittedly rough, figure.