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By Martin Luke From Vox Markets

Pantheon Resources (PANR) issued a cleansing statement yesterday ahead of their well-publicised institutional investor roadshow. I managed to secure an invite to one of these meetings through an old colleague and was encouraged by what I heard. The team at Pantheon admitted that, if they had not had institutional investor meetings, they would not have issued an update as it is incomplete and inconclusive. They would rather have waited until they had conclusive flow test results. However, cancelling the meetings instead, could have caused even more questions. I tend to agree with this, however it does show that honesty isn’t always the best policy in the square mile and may explain why certain management teams are reluctant to be so open with investors. If nothing else, I commend the team for adhering to the rules!

Jay Cheatham (CEO) looked very relaxed (unlike after the horizontal drilling shambles of VOBM#2) and sounded positive. Most importantly, they are fully funded through 2017 and revenue generation will begin in Q1. I would also add that despite the fall in the share price, the general mood of those in attendance was positive. VOBM#3: This well was sited as a planned horizontal well. After the failure of horizontal drilling at VOBM#2, they reverted back to vertical, but deviated drilling. Due to the ambiguity of the seismic data, they discovered that they had drilled on the edge of the mini-basin and into a thinner section of sandstone. They said that there were 2 possible interpretations of seismic depending on the various inputs. They had input the parameters borrowed from the VOBM#1 well log. There was no well log data from VOBM#2. They sited the well as far east as possible within the drilling unit. (The company has leases set out in drilling units licenced from the Railroad Commission. Land is held by production so the company wants as bigger drilling units as possible (I believe he stated 300 acres) in order to hold as much acreage as possible with the least drilling cost. The company has c.4,500 leases.) The drilling at VOBM#3 has cleared up the ambiguity about of seismic results and given the JV partners a greater understanding of the geology. I am not technical expert on oil & gas, but management stated categorically that the clarifying of seismic data in no way impacts their interpretation of geology or reduces the scale of the potential reserves. They believe the well was probably 400ft off (towards the edge of mini-basin) hence the thinness of the sandstone section. The well was drilled on time and on budget of $3.75m (including the fracking cost).

As the well was towards the edge of the mini-basin, they decided to conduct a single stage frack (‘in order to emulate the possible benefits of horizontal drilling’) to access the hydrocarbons back into the mini-basin. They are now flow testing the results. As mentioned before, the flow-testing is still continuing and less than 60% of the frac fluid has been recovered. They stated the initial flow rates have been very variable, but Flowing Tubing Pressure (FTP) has been rising and is at 5,900 psi, which is a good sign. They are using 12/64ths choke, which is only c.4mm, as they are being conservative and do not want frac proppant (fines) flowing back into the well. The well has flowed between 240 boe & 740 boe per day. Even at the low end of that range (240 boe), the well would still be commercial generating c.$9,000 per day (after tax & royalties). The JV partners currently have no agreed explanation, although they are a whole host of possible contributing factors (eg. fines moving), as to why the well is flowing less than expected. However, they hope that it should increase once the frac fluid has been recovered and that flows should increase to the equivalent of the analogous Double A Wells Field wells, which are in the 1,000-3,000 boepd range. Typically, the flow rates from analogous Double A Wells Field wells increase for the first 6 to 14 months and then start decline. (The adjacent Double A Wells Field was first drilled in 1985. Well life is 20-30yrs and well density is high with variable results across the basin. The more central wells have been shown to contain c.4m boe recoverable and those towards the edge c.1m boe.) The full flow test results will not be known until it has been put on extended test (several weeks). However, as with all wells, one actually needs to go into production to see proper results.

Jay, looking at the well result as an oilman (rather than as an investor), sees it as part of the learning process to gain a greater understanding of the geology & mini-basins and, therefore, is not at concerned about the well in the bigger picture of things. Obviously, he would like to see higher flow rates, but believes that these should increase as the well cleans up and pressure continues to build. Gas processing: Originally the JV had 2 options: to contract out collection & processing or to build small scale processing facilities themselves. It now seems that there is preferable third option – a 3rd party pays for and builds dedicated a larger gas processing plant. The benefit, apart from no capex cost to the JV, is that a large plant would be more efficient and also more of the condensates would collected as liquids thus improving the economics for the JV. The JV would just be charged a processing fee. The JV is already in advanced discussions with a potential a 3rd party, who state that the processing plant would be in production 60 days after the contract is signed. The JV have already planned the site of plant, their own pipelines and paid for their tap into the gas pipeline.

They state Spring 2017 for first production revenues and believe that these cash flows should hit $1m per month from the existing wells. Both the JV partners, Vision and PANR, are keen to get into production so I imagine it could possibly be by Feb 2017. VOBM#4 – Tyler Co centre basin test: Drilling is proceeding well and is currently at 12,000ft. However, penetration rates slow at depth so one should not expect the same rate of progress. TD should be reached (on a trouble free basis) in the first week of Jan. If they proceed to flow test (which one certainly hopes they will do), we should get results towards the end of Jan. The JV hopes to prove that Tyler Co is one large mini-basin. The Double A Wells Field is 6 sq. km, whereas the JV believe the Tyler Co basin could extend to 20km by 3km. Obviously this well, if successful, would be a major step forwards. Other plans: After VOBM#4 the rig will move back to VOBM#2 to re-enter and then drill vertically. Jay said that he would be keen on drilling a fourth Polk Co well. If VOBM#4 is successful, the JV would seriously consider a second exploration rig. Rig rates remain very low.

In summary, Jay seemed confident, relaxed and upbeat. I suppose this is the benefit of having years of drilling experience together with the requisite patience compared to investors with a rather shorter time horizon and the lack of appetite/understanding for/of exploration drilling and it’s various vagaries. Jay CEO Jay Cheatham, drilled his first well at 17, really do you find such an experienced executive.

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From OILPRO.COM

By Ahmad Ghaddar, Alex Lawler and Rania El Gamal

VIENNA, Nov 30 (Reuters) – OPEC has agreed its first limit on oil output since 2008, sources in the producer group told Reuters, with Saudi Arabia accepting “a big hit” on its production and agreeing to arch-rival Iran freezing output at pre-sanctions levels.

Brent crude futures jumped 8 percent to more than $50 a barrel after Riyadh signalled it had finally reached a compromise with Iran after insisting in recent weeks that Tehran fully participate in any cut.

The source said the Organization of the Petroleum Exporting Countries had on Wednesday agreed on a proposal by member Algeria to reduce production by around 4.5 percent, or about 1.2 million barrels per day.

Saudi Arabia would contribute around 0.5 million bpd by reducing output to 10.06 million bpd, the source said, while Iran would freeze output at close to current levels of 3.797 million bpd and other members would also cut production.

The source added that OPEC had also suspended Indonesia from OPEC and hence the exact combined reduction was yet to be calculated. The meeting was still ongoing after around six hours of debate.

“OPEC has proved to the sceptics that it is not dead. The move will speed up market rebalancing and erosion of the global oil glut,” said OPEC watcher Amrita Sen from Energy Aspects.

Before the meeting, Saudi Energy Minister Khalid al-Falih said OPEC was indeed focusing on significant cuts and hoped Russia and other non-OPEC producers would contribute a reduction of another 0.6 million bpd.

“It will mean that we (Saudi) take a big cut and a big hit from our current production and from our forecast for 2017,” Falih said.

Clashes between Saudi Arabia and Iran have dominated many previous OPEC meetings.

But the tone changed on Wednesday with Iranian Oil Minister Bijan Zanganeh saying he was positive since Iran had not been asked to cut output.

He also said Russia was ready to reduce production.

“Moscow have agreed to reduce their production and cut after our decision,” Zanganeh said.

NON-OPEC CONTRIBUTIONS

OPEC, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output in an effort to prop up oil prices, which have halved since mid-2014.

OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions.

The September deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when Saudi Arabia increased output.

Sources said that out of additional non-OPEC cuts of 0.6 million bpd, OPEC expected Russia to cut by 0.4 million. A Russian ministry source said the figure was “a bit excessive”.

OPEC member Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State.

Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd.

“If you get this deal done, it would be huge. You remove a lot of oil from the market and you get the Russian participation,” said veteran OPEC watcher and founder of Pira consultancy Gary Ross.

Bob McNally, president of Washington-based consultancy Rapidan group, said on Twitter that compliance with cuts would be key: “In deals with Russia, OPEC is like (the late U.S.) President (Ronald) Reagan used to say: ‘Trust but verify’.”

(Additional reporting by Vladimir Soldatkin, Shadia Nasralla and Lisa Barrington; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)

PHOTO: Thunder Horse by Marc Morrison.

Trump to scrap Nasa climate research in crackdown on ‘politicized science’

A Nasa Earth photo shows the Bruckner and Heim glaciers where they flow into the Johan Petersen fjord in southeastern Greenland.
A Nasa Earth photo shows the Bruckner and Heim glaciers where they flow into the Johan Petersen fjord in southeastern Greenland. Photograph: Jeremy Harbeck/AFP/Getty Images

Nasa’s Earth science division is set to be stripped of funding in favor of exploration of deep space, with the president-elect having set a goal during the campaign to explore the entire solar system by the end of the century.

This would mean the elimination of Nasa’s world-renowned research into temperature, ice, clouds and other climate phenomena. Nasa’s network of satellites provide a wealth of information on climate change, with the Earth science division’s budget set to grow to $2bn next year. By comparison, space exploration has been scaled back somewhat, with a proposed budget of $2.8bn in 2017.

Bob Walker, a senior Trump campaign adviser, said there was no need for Nasa to do what he has previously described as “politically correct environmental monitoring”.

“We see Nasa in an exploration role, in deep space research,” Walker told the Guardian. “Earth-centric science is better placed at other agencies where it is their prime mission.

“My guess is that it would be difficult to stop all ongoing Nasa programs but future programs should definitely be placed with other agencies. I believe that climate research is necessary but it has been heavily politicized, which has undermined a lot of the work that researchers have been doing. Mr Trump’s decisions will be based upon solid science, not politicized science.”

A senior Trump adviser said there is no need for Nasa to do what he has called ‘politically correct environmental monitoring’.
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A senior Trump adviser said there is no need for Nasa to do what he has called ‘politically correct environmental monitoring’. Photograph: Massimo Rumi / Barcroft Images

Trump has previously said that climate change is a “hoax” perpetrated by the Chinese, although on Tuesday he said there is “some connectivity” between human actions and the climate. There is overwhelming and long-established evidence that burning fossil fuels and deforestation causes the release of heat-trapping gases, therefore causing the warming experienced in recent decades. Walker, however, claimed that doubt over the role of human activity in climate change “is a view shared by half the climatologists in the world. We need good science to tell us what the reality is and science could do that if politicians didn’t interfere with it.”

It’s understood that federal government scientists have been unnerved by Trump’s dismissal of climate science and are concerned that their work will be sidelined as part of a new pro-fossil fuels and deregulation agenda. Climate scientists at other organizations expressed dismay at the potential gutting of Earth-based research.

Kevin Trenberth, senior scientist at the National Center for Atmospheric Research, said as Nasa provides the scientific community with new instruments and techniques, the elimination of Earth sciences would be “a major setback if not devastating”.

“It could put us back into the ‘dark ages’ of almost the pre-satellite era,” he said. “It would be extremely short sighted.

“We live on planet Earth and there is much to discover, and it is essential to track and monitor many things from space. Information on planet Earth and its atmosphere and oceans is essential for our way of life. Space research is a luxury, Earth observations are essential.”

Michael Mann, a climate scientist at Penn State University, said Nasa has a “critical and unique role” in observing Earth and climate change.

“Without the support of Nasa, not only the US but the entire world would be taking a hard hit when it comes to understanding the behavior of our climate and the threats posed by human-caused climate change,” he said.

“It would be a blatantly political move, and would indicate the president-elect’s willingness to pander to the very same lobbyists and corporate interest groups he derided throughout the campaign.”

Nasa has appointed two officials, Tom Cremins and Jolene Meidinger, to lead the transition to the new Trump administration. However, the president-elect’s team has yet to formally review the space agency.

“The Nasa community is committed to doing whatever we can to assist in making the executive branch transition a smooth one,” a Nasa spokesman said. “The agency remains focused on the future, a future that will improve our understanding of our changing home planet from Nasa’s unique platforms in space.”

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