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Hi Brombarb

I am not making any claim whatsoever. I am asking genuine questions. I don't know, so wondered if others on here had any thoughts. I am not disparaging Baker Hughes or anyone else. It is simply a question of probability in my view. VAS can provide positive indications of hydrocarbons, but they cannot prove they are commercial - only the flow test can do that. But I was surprised that they would provide positive indication of hydrocarbons 'in transition'. Hence my question.

No claim made at all.

JL

Hi

After much deliberation since the flow test result, I have a couple of questions for the board based on my limited knowledge of the industry if I may. Please take them as intended, genuine questions to help me to understand the implications of the latest result on the potential resource base for Pantheon.

The flow test of TS1 is obviously disappointing, but given the comment that the oil shows were 'a transition zone' does this effectively mean that the oil has migrated elsewhere? In other words, there was not an effective seal for this zone so the zone is water charged rather than oil. If that is the case, on the assumption that the oil source is still good, does this not raise the likelihood of the higher level zones being oil charged? Given the oil could simply have migrated upwards, leaving water behind in this lower zone, until it hits an effective trap? If this is correct, what are the seals for the next zones? Do we have any more or less confidence in those or do we simply not know at this stage? Presumably, seal is now the greatest geological risk for the remaining five zones, is that a reasonable assumption?

Secondly, what are the implications of the 'high-pressure pumping equipment' being brought in? This to me sounds positive. They expected 200bopd from TS1 but reached a steady 1000, albeit of water. With increased permeability and porosity further up the well, they expect better flow rates to improve. Has the base line moved up from the 200bopd to a higher figure because of this result (independently of the the better perm and por)? Tied in with my first question, if the oil has migrated upwards, the next zone could well be in pressure contact to this water aquifer, could this provide a decent stimulous to flow rates?

The above sounds pretty positive to me, and perhaps explains this quote in the RNS: " the data we gathered leaves us with increased confidence in the five shallower and more productive horizons that remain to be tested.".

Thirdly, I believe we had the VAS readings across these zones that indicated oil. Does this mean that VAS is picking up false positives from this transitory oil? If so, does this reduce our confidence in VAS readings across other zones? And if so, could this not also be happening in the other parts of Aphun, or even Kodiak? I guess what I am asking is whether there could be similar positive VAS readings across the whole of the 1.6bn resource that are also slightly higher risk now? Presumably the independent experts will also have used the VAS data in their evaluation and confirmation of the 1.6bn boe resource, so would they have come to the same conclusion now we have this possible false positive?

Probably too many questions for a single post, but thought I would fire away while I am here. I am a long time lurker here, I don't post much because I have little to add other than opinion. And we want to keep this a fact based board! :)

Thanks in advance for any help

Good question, I could not see any reference to timings on the RNS. So what can we deduce...

They they have said 10 days test per zone. And they want to do 7 tests in total. Their original timeline was (I believe) for testing to be completed in Q1 so they probably allowed 40 days for the planned testing in Q1 with presumably a couple of days downtime between each.

There are 68 days before end Q1 so I would think they would be starting testing the first (deepest) zone by the end of Jan to allow for contingency. Given how important the first flow test is, and the market's expectations, I would think they would provide an initial flow rate after 1-2 days. Then a final flow rate after the 10 day period. So we could have the next RNS around the start of Feb.

From that point onwards, assuming they will RNS each test result upon completion rather than initial flow rates, this would make the RNS timetable something like:

Initial flow of test 1 3rd Feb (or thereabouts).

Final flow test 1: 13th Feb

Final flow test 2: 25th Feb

Final flow test 3: 10th March

Final flow test 4: 22nd March

Would there be a need to pause before starting on the new zones? Not sure there would be so we could then expect.

Final flow test 5: 3rd April

Final flow test 6: 15th April

Final flow test 7: end April

So next detailed webinar would be for early May. :)

All of the above is a bit of a guess though. They may not announce every single one. And lots of contingency required to adjust as they see how each test goes and check the stability of the well bore.

JL

Hi

Yes, good point. It is that type of market, and has been for a while now. Unfortunately.

The 'growth' they have had over the last 3 years has all been in the top line. I have a feeling that the margins on the Sukari contract were so low as to make virtually no profit at all. But if they want to move into this type of work they probably needed this as a case study to prove they could do it, and effectively. The extension is nice, but revenue from Services could then fall off a cliff in Q4 unless they win something else. There was a nod to that in the Cannacord paper that basically said they had capacity for another win - i.e. they need another win to stay in the game here.

Thankfully Drilling and Labs are pulling strongly, so we may see revenue drop off but profit rise next year. Not necessarily a bad thing.

JL

Hi Lesville

I can see where you are coming from but that would be a disappointing outcome IMO. I would want at least 140p for these, and even that would be pretty cheap vs 15.5p EPS (p/e around 9).

Re the results, I agree they are promising. But there is nothing on margins or profits in here so still too early to celebrate. But given the increase in Arpor I would hope we would see an improvement in margins too. H1 results will be interesting when they come out.

Re Tamesis forecast, I would hope their EPS figures are actually over-cautious. If we apply the same margins as last year to the H1 figures then this would be 7.5p EPS in H1. And H2 should be stronger so I have 15.6p for this year not next year. So either they are forecasting a significant drop in margins, or they are being ultra- cautious. Either way, there is room for a surprise to the upside when the results come out.

I am still happy to hold, but not buying more currently as I am maxxed out. If margins do indeed drop, then we are back to the key issue: good solid business with steady income growth, but what is in it for shareholders? We need to see profits and dividends rising again. Both of which I perfectly feasible, both in the short term and the medium term with strong tailwinds from the recent wins and MSALabs.

JL

Hi Swest

I can see where you are coming from, but they do have an exploration team on the payroll who need to be doing something. Otherwise, what are they going to do, let them go and then rehire? No chance. This feels very much like a field trip for their internal team at minimal cost, before they embark on any drilling. Otherwise, why would then choose that asset and not the other one nearby that had Li shows and is probably ready for some drilling.

JL

"Next 10 days" - nice to have a timeline on it. Hope it doesn't get delayed as that is a big milestone in my book.

JL

Yes, this is positive news. But I was struck by the critical absence of a date for the listing. I wonder why they have not got that agreed yet? So this is only a minor step forward in my view. Until they actually list, until the actual ratification, until they actually get the EPA, we are still in 'risk on' mode. Just my, possibly pessimistic, view.

JL

Thanks Gaias. That sums it up pretty well. Way better than my post!

My worry was how much of the value they have to give away to get the $75m-$100m up front cash they need to develop the mine and continue exploring. If they have to give away too much, then the majority of the first 3-5 years of profits are effectively used up to develop the mine. So decent profit wouldn't kick until year 4-6 depending on the deal.

Not long to wait now though, and with so many potential positive catalysts over the coming quarters, I am not letting any go.

JL

I agree. The offtake will be really interesting. In the last presentation, it was clear that only 30% of the output was up for grabs, leaving the final 20% unaccounted for. I assume the remaining 20% is MIIFs 19% share leaving 1% spare each month. Is that correct? If so, ALL are fully funded for the development but won't make any money for a little while after production commences. Which possibly explains some of the SP weakness.

JL

I went through the new presentation deck last night. Nothing really new but I thought it was really good. Very compelling case in my view, but I would say that! Lots of news flow coming up, any one of which could light a fire under the share price. It certainly needs it.

In my view, the listing, the ratification, and the MIIF investment are all intrinsically linked. As soon as one lands, it validates the others. I thought the same after the first MIIF investment but my timing was clearly wrong. Not sure when any of these will land, but once one does, the others should follow in quick succession. The main reason for thinking they are linked is that if only one doesn't happen the whole thing falls apart. Without the listing confirmed, we won't get ratification as that is a condition, without the ratification we won't get further investment from MIIF. Although the formal listing could actually happen later, but as long as they have the process confirmed, ratification should not be held up.

Then onto permits and financing which are also only a few months away!

I topped up recently, and am now maxxed out. Fingers crossed!

JL

Hi Shareminator

If you go back to 2019 then yes there is growth. But what about the last three years...

2021 revenue $227m Net profit $37m EPS 15p

2022 revenue $290m Net profit $42m EPS 17p

2023 revenue $318m Net profit $36m EPS 14p

Now I get that some of this will be investment, ie Capex. But personally I am disappointed with the drop in profits and EPS in 2023. 50% increase in revenue with zero increase in net profit or EPS. So we are larger but no more profitable. And the dividend is also flat in 2023 after small increase in 2022. None of this is a good trend IMO.

I stick to my summary, they need to show better bottom line growth, to sustain an increasing dividend, or I am going to start selling.

JL

I agree they could have been more forthcoming with info on these tests in Cas 1.

Also, the big decline in production is the cause for the SP to fall. 8500 to 7000 in one quarter is a pretty steep decline curve. Some of this may be due to shut off for testing, but if so, why did they not state that? Presumably there was also downtime in Q4 so it is not unreasonable to assume that most of this decline is not due to shut ins for testing. In which case, what does the decline curve look like?

JL

Hi Lesville

I agree with this. Something just doesn't sit right.

I am minded by two things: firstly, when this was pitched by a PI to institutional investors a couple of years back they were unimpressed, despite the healthy growth and blue chip clients. So clearly there is little appetite for the share with institutions as you say.

Secondly, the relative lack of growth in profits over the last few years despite revenue rising strongly. It shows their lack of pricing power and thin net margins. The issue appears to be in the large sustaining Capex required to keep their fleet up to date. I remember a comment below that basically said - impressive growth, but not a lot of cash left for shareholders to benefit from (I paraphrase). This, to me is their biggest challenge, and the reason they are still under £1.

Growing revenue is one thing, growing profits at a similar rate is what we need.

Having said that I am still holding on, with MSALabs potentially the jewel in the crown, there is still good upside from here.

JL

Likewise didn't make the presentation this morning so hope to pick it up on youtube at some point.

I am slightly underwhelmed by earnings in today's announcement. Their previous positive words bely what has clearly been a more difficult market this year. EPS is down sharply on last year and unlikely to make a new high next year unless margins improve. Still think they are cheap, but mainly because of MSALabs. Imagine the rating that would get as a standalone business. Surely they need to consider spinning it off to maximise shareholder returns. It is the only growth part of their business currently and such a different beast that I have to question the logic of keeping it in the group. I guess the benefits would be the end to end solution for clients, and presumably the shared industry contacts. But is that enough to justify rating a fast growing business at a P/E of under 8?

JL

Yes, reasonably happy with that update. Pleased to see they are maintaining annual guidance, they need to hit at least $86m in Q4 to reach $320m. Given they have left the upper band unchanged, could that be a sign of confidence that they will smash that?

Obviously, conversion into profits and cash is still key here. The comment below about there being little cash left for shareholder returns is still a concern.

Also, I wonder why Tamesis are forecasting a higher p/e of 7 for next year. Lower earnings? Surely not - there should be more upside given recent contract wins and the MSALabs growth. I hope.

JL

I agree, another great win. What a muted reaction to the news though.

On Tamesis report, I haven't read it, are they forecasting a reduction in earnings for 2024 as the ratios quoted seem to be rising. I had another rise in income and earnings pencilled in for 2024.

JL

Hi LV

I am starting to think you may be onto something here. I am still holding currently but am getting more and more concerned. If the wall of cash turns out to be a small knee height one then all of the cash will go on paying back debt with nothing to spare for a few years. It will take a decent 2m high wall to have enough to pay down debt, invest in more production wells, plus the exploration that we were promised would come quickly after Casca.

And of course, any issue with Casca and we are toast. So the risk is not insignificant. Hence the weak share price.

They need to do a decent market update to explain their plan in detail for the next 6-12m. Including details of funding and expected free cash flow. Including what contingency they have included to cover the unexpected to reassure there is enough headroom without any further dilution. Until we have this, the market will remain unconvinced IMHO.

JL

Anyone join the call this morning? I wasn't available but hope it will be available publicly in the next day or two. More good progress this half, although looking unlikely they will get back into Sudan in the near future - it looks awful over there. A tragedy unfolding. Other than that, still looking very cheap indeed.

ON Tamesis point about 2.4 times 2020 revenue, but what about profit or free cash flow. They have certainly not kept pace with that rise. Hopefully, they will follow in time, otherwise there is something odd going on - too much depreciation?

JL

Finally caught up on the webinar. I tend to agree that over all it was useful. They certainly talked a good talk and were very credible. Having reflected, here are my questions that are still nagging me.

1. The $29m NPV from a $13m well quoted. Does the NPV include the cost of the associated infrastructure? In particular, their design is for 1 reinjection well for each 3 production wells. Presumably this well cost of $13m is averaged over the four and is not simply the cost for a production well directly. Although the waterfall chart seemed to imply it was a single well cost. Otherwise, they will need a lot of wells before they cover the cost of the infrastructure, further delaying any returns to us poor shareholders.

2. How does this ratio of $12m to $29m compare to other fields? In particular any similar fields elsewhere, or even on unconventional fields where these techniques are required to make any sort of return. I would hope this ratio would be ahead of Permian and other unconventional fields that only made money during higher oil price environments.

My other concern with PANR is simply time. If it will take until 2028 to become cash self fulfilling, what will the NPV be by that point if the ESG lobby take hold. I have no doubt that oil will need to be left in the ground if we are to stop burning up the planet, with such a long payback time, it could well become unsustainable way before the field is exploited - especially Kodiak. To me, this is the main thing holding back the price.

JL