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Don't forget, Blingybird, that analysts backsolve these things. They START with the desired share price target / value, and then backsolve and adjust the underlying assumptions to achieve the desired result. I know this because I used to be one. Now whilst this might sound superficially dishonest, in reality they only do it because they know if their model spat out share price outcome which was too far from the current share price, it would make their research look incredible and people would ignore it.
Now in the Pantheon case, we all know that if we get some decent drilling results, then the 2.2bn contingent resources recoverable imply the current share price is a joke. But i think the reality is that there is only so much credit the market will give you for seismic estimates. It needs to be proved at the drillbit.
I am VERY optimistic!
Two pieces of excellent news. Scot's estimate about Farallon's underlying ownership were bang on, and now <10% hopefully people can stop worrying about Farallon. In other news, DNR has approved the drilling program. Pass the popcorn!!
The way I think of it is that either the share price is faulty, or the oil estimates are. They certainly cannot both be right! I hope and believe it is the former. I've come to the realisation that there is simply only so much credit the market will give you for seismic contingent resource estimates. Approx $250m has been spent on this acreage and the company is valued at nearly triple that, which is probably realistically all you're going to get for now.
Now of course if (when!) the contingent resources are proved up to be reserves through the drill bit, then it is a whole different ball of wax. We all hope and expect this will happen, or we wouldn't be here. However, i think we have to be realistic about how much credit the market will give without proof through the drill bit.
My take on that risk is that with the stock currently valued at about $0.33 / bbl of contingent resource of 2.2bn bbl, and with an NPV of say $8 if proved, you are taking a 1 down, 24 up bet on drill bit success which in my opinion is very good odds.
Scott, they're estimating 2.2bn bbl recoverable from 17bn OIP right? So that would be a recovery factor of about 13%. Do we know why it is so low? Didn't Jay say recently the recovery factor in adjacent fields is 20-50%?
In my opinion, the investment case for PANR is now straightforward.
Using the new share count post placing of 744.4m shares, and current share price of 69.3p, the market cap of the Company is $681m. Add to that the CB of $55m, and you have an enterprise value of $736m. The estimated contingent resources (using a very conservative recovery factor) is 2.2bn. So on that basis, the Company is valued at $0.33 / bbl of contingent resources.
The numbers you might consider comparing that $0.33 with are: 1. the $3.10 Oilsearch paid for acreage on the north slope, 2. The approx $8 NPV the Company has estimated with Brent at $70, 3. The roughly $30 / bbl of profit assuming 17% royalty rate and $70 oil.
If we picked $8, that would imply a value 24x the current share price. So the way i look at it, it's 1 down, 23 up. Now of course, we simply won't know until the drilling is done. But IMHO, those are very favourable odds. The fact the execs participated in the placing has also not escaped my attention.
Indeed, although Jay has been clear that more money will be required in 23 even if there is some actual production cash flow. but of course by then the results of the drilling will be in and, inshallah, we will be looking at a share price multiple times higher.
So now we have: 1. not just Theta West and Talitha funded, but ALSO Alkaid. 2. Enough money for further drilling beyond that. 3. Enough money to 23 by which time the drilling results will be in, and it will be a totally different conversation. 4. Most of the money backstopped by the $55m CB cornerstone meaning that shareholders were actually only asked for a fraction of what we might have been. 5. A valuation of about $0.30 / bbl on 2.2bn contingent resources Vs > $3 paid by Oilsearch and profit per barrel of say around $30 after royalties. 6. Execs putting their own cash into the placing. 7. Remaining possibility of farm out. 7. 2.2bn based on recovery factor of 12% Vs 20-50% for other nearby fields.
Obviously it will all depend on the drill bit in the end. But the odds are so massively stacked in our favour, you've got to be involved, IMHO.
No problem. Enjoy the weekend. Hopefully farmout news soon!
Hey buddy. I think people sometimes misunderstand this "buys" and "sells" nomenclature becasue of the way it gets reported on boards. For each share that is transacted, there is one buyer and one seller. Buys and sells are "equal". I think sometimes they mean, how much was transacted on the Bid and how much on the Offer. Yesterday's drop was, IMHO, mainly about the 5% drop in the oil price, and 21% drop in oil since its peak on 26 October. Note today, oil has rebounded by 4%, and the stock is up 6%. In the meantime of course, we all continue to chew our nails waiting for the farmout / funding!
i think you might well be right. This pullback doesn't surprise me at all given the impatience the market has for the farm out / capital raise, and the 10% loan. I don't know any more than you on exactly when the farm out will be announced, but I strongly suspect it is soon.
OK, now you're irritating me. I've been scrupulously polite to you, yet you insist on being rude to me. Not to mention I have given lots of data in my answers whilst you have given none. I already accepted that 10% might be OK. If you care to furnish us with examples of comparable loans made to comparable companies, I'm all ears.
It's ironic and hilarious in the extreme that you take umbrage at my "showing no signs of humility". That's just plain rude. I stated I thought 10% was high. I gave lots of comps. I acknowledged they're not directly comparable. You've given no data at all. (although I am aware of and appreciative of your very detailed posts about other matters, and your obvious expertise in the sector).
Then you say "is not a battle of ego, ffs", whilst precisely battling with your ego. I tried to be as accomodating and appreciative in everything I said (and gave lots of numbers), trying to be as polite as possible. You on the other hand seem to have no problem attacking people.
The relevance of US Treasury yields is that it represents the "risk free rate" and it is relative to this that all other risk and yields / coupons are calculated. I'm sure you know that. Of course I'm not arguing that a small Company like Pantheon should be able to borrow at the same rate as the US gvmt.
You then go on to accuse me of trying to have an argument with you. What then precisely is all the venom you have lobbed back in my direction if not seeking you an argument? Don't you think that's just a little bit hypocritical?
Yes I've seen your claims previously about your 25 years of experience. I believe you. Lots of your previous posts prove that you understand this business of analysing companies really well. That's why I've enjoyed reading your posts historically, and will do again. I might add that I have a similar level of experience in finance and investing, although I don't try to beat anyone over the head with it.
I take your final para as your accepting that there aren't infact any comps, or at least you're not aware of any? That's fair enough given it's a very bespoke kind of loan / situation. But wouldn't that also make it impossible for you to make your previous assertion that 10% was "typical" or "fair".
Anyway, so re-sheeting my sword, I'll finish by saying I look forward to speaking in future, especially if you can cite numbers which contradict mine. I stand by what I said that I have no appetite to spend time on a bulletin board exchanging hostile messages with strangers. Especially given my fundamental position on Pantheon remains that of a very optimistic and excited shareholders. Hopefully our future exchanges can be civil and productive.
Hey Scott. You may be right on the shareholder being taken inside. I already said in my previous post I don't see how we can know that.
If you tell me 10% is fine, I believe you. As I said earlier, I'm not losing sleep over it. It'll be a short duration situation, and it hasn't damped my enthusiasm for the story. I'm not here to try and talk the stock down. 10% is, in my view high for any company given US 10y at 1.5%, UK 0.9%. Are there comps for the cost of debt for pre-revenue speculative E&P names like this?
In the US, 10y BBB 2.8%, CCC rated 7.05%. Average across all Energy companies 5.2% (admittedly most of these bonds are issued by big cash producing established companies).
I don't need to have an argument with you about this.
Well, a quick peak Tullow's bonds trade at jsut under 10%. Gulf Keystone 7.6%, Harbour Energy 5.7%, Enquest 11.5%, DNO 7.2%, Norwegian 8.0%.
Thanks for your detailed reply, Scot126. I'm going to have to disagree though. 10% is high. I do agree that since it is likely to be of very short duration, the actual amount of money we are talking about is de minimus. But I do think it's a little odd that the Company was not able to obtain finance more cheaply. Not something I'm losing a huge amount of sleep over. As to your point about whether the shareholder who made the loan was taken inside or not, I don't have a view. No way of knowing is there?
It's for two reasons: 1. The fact they've had to take this loan out indicates (if you are paranoid or nervous) that the negotiations on the farm out are more fraught than thought. The Company had previously indicated that it thought the 2020 cap raise, in November, was too late, and so the market had been conditioned to expect the farm out BEFORE November, and obviously it hasn't happened. Personally I don't think that's a big deal, but I do understand some nervousness / disappointment. 2. the 10% interest rate is very high, and you could take that as reflecting a degree of desparation. Personally I don't think it's relevant as it's a very small loan and will probably be repaid very quickly, but 10% is high.
OK, so now we're seeing something closer to the market reaction i was anticipating. Taking a loan at 10% indicates that negotiations with farm out partner still have some wrinkles to be ironed out. I fully expect this to occur and the farmout to be a seminal moment in the history of the stock. But I am not surprised at all it is down today.
I like the cut of your jib, SeaHawk!
I fear the stock is very pregnant now. It's come a long way on no real news. Everyone is waiting for the farmout. If it doesn't come, or the terms underwhelm, we could retrace a long way. Don't get me wrong - I remain hugely bullish mid-long term. But we've been waiting for this farm out announcement for a long time.
"close to 2bn barrels recoverable". Obviously the market doesn't (yet) believe them. This is going to be exciting!