Investors of Pantheon Resources (LSE:PANR) are understandably jumping with joy after its share price exploded by over 50% last week. The upward momentum was triggered by the release of a testing update from its Talitha #A oil project and has pushed its 12-month performance to over 230%!
As a reminder, this site is expected to contain up to 1.2 billion barrels of oil. And it’s been responsible for a lot of the volatility in the PANR share price seen in 2021. So what was in this update that has investors so excited? Or is this just a short-term boost that’s likely to collapse again in the near future? Let’s explore.
Unexpected positive results
On 7 February, management announced the completion of drilling tests on the Lower Basin Floor Fan of its Talitha #A project in Alaska. The objective was to verify the quality and presence of light oil. This was successful. However, that doesn’t appear to be behind the surging PANR share price.
These tests were performed around 10 miles away from the optimal development location. Yet despite this, the company achieved an average flow rate of 73 barrels per day over three days. And on the last day of testing, the rate had stabilised at 40 barrels.
This is exceptionally encouraging news and beats all of management’s expectations, especially since the drilling test site is in a sub-optimal location. In other words, this is a strong indicator that flow rates at the selected ideal development site could be many times higher.
Considering there were fears that the entire project could be unviable last year following disappointing earlier tests, I’m not surprised to see the stock surge on this news. But are investors getting ahead of themselves? Maybe. Let’s take a step back.
The risks surrounding the Pantheon Resources (PANR) share price
As encouraging as these results are, it’s important to remember that any form of commercial production has yet to begin. Although this might change later in the year depending on the drilling results of its Alkaid 2 well this summer.
Looking specifically at these latest results, they indicate the possibility of a high flow rate at the selected development site. But, in the words of CEO Jay Cheatham, “it does not guarantee success”. The company is performing further tests, gathering more data to verify its findings and confirm the potential viability of this project.
Let’s assume these future tests all deliver positive results, and Pantheon Resources begins production soon. Will the PANR share price climb further? I certainly think it’s possible. But as with any oil company, the group is ultimately at the mercy of fluctuating oil prices.
Currently, the value of the commodity is climbing rapidly, but that inevitably won’t always be the case. Should oil prices collapse in the future, as they have done in the past, then the stock could be in for quite a beating.
Time to buy?
Personally, it’s too soon for me to invest in this business. For now, I’m going to wait for the results of the next set of tests before deciding whether or not to add this company to my portfolio. But I will admit, following this latest update, I am cautiously optimistic about the PANR share price.
