It has been a great year for Pantheon Resources (LSE: PANR) as the company has gone from strength to strength. Year to date, Pantheon shares have risen just under 230%, transforming Pantheon from an AIM minnow into a £100m company.
And at time of writing, Pantheon’s shares are up 30% today after the company revealed a set of upbeat production results from its VOBM#1 well, one of the two wells currently being drilled by Pantheon in Texas. Drilling operations at the company’s other Texan well, VOS#1, are ongoing, and Pantheon will update the market when the results for this prospect are available.
However, for the time being the results from Pantheon’s testing of its VOBM#1 well have given investors plenty of information to digest.
Better than expected
Pantheon has a 50% working interest in VOBM#1 and testing showed that the well has the capacity to produce 1,500 barrels of oil equivalent per day gross. Also, initial flow rates indicate that the well could exceed the pre-drill P50 prospective resource estimate of 1.4 mmboe. Although, it will take some time to determine if this is really the case.
Pantheon spent years trying to identify the best oil prospects, so it’s no surprise that VOBM#1 has turned out to yield more than initially expected. It’s highly likely that the company will report similar results from its other high-impact prospect VOS#1.
What’s more, unlike many other oil minnows, Pantheon is cash-rich and now that VOBM#1 is producing oil, the company’s cash position will only improve. At the end of 2014 Pantheon had just under £7m in cash, putting the company in an advantageous position. While many other small US oil producers are struggling with high leverage and low oil prices, Pantheon has the cash to buy up other assets at rock-bottom prices.
A long way to go
Unlike Pantheon, Sirius Minerals (LSE: SXX) hasn’t started production and the company needs to raise a considerable amount of debt before the construction of its York Potash project can begin.
Unfortunately, the next 12 months could make or break Sirius. The company has most of the approvals in place that it needs to commence construction, but markets are turning against the company.
Indeed, Sirius’ primary task during the next 12 months will be raising the cash required to finance the construction of the York Potash project. Management has stated that the company has been working with advisers since January 2015 to arrange the £1.8bn in structured debt capital for stage one of the project.
However, since the beginning of the year the markets have moved against Sirius. Firstly, the price of potash has declined slightly and is now down around 40% over the past three years. And secondly, banks are becoming increasingly reluctant to lend to commodity companies.
Still, Sirius’ figures indicate that its York Potash project has the potential to be one of the most productive mines in the world, and for this reason lenders might be more inclined to lend the company the case it needs.
In my opinion, Sirius is a high-risk play that isn't suitable for widows and orphans.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.