Pantheon Resources (LSE: PANR) and Premier Oil (LSE: PMO) are two very different oil companies at various stages of their lives. Pantheon is, compared to Premier, an upstart that’s reported tremendous success over the past year or so at its North American oil prospects.
Premier, on the other hand, is an old dog, producing around 80,000 barrels of oil per day from many different wells around the world with more potential production waiting in the wings.
However, the company is also drowning in debt and while the recently announced refinancing deal will go some way to improving the Premier’s financial position, management’s targeted debt to EBITDA ratio of three times severely limits the company’s options.
Pantheon meanwhile has a debt-free balance sheet. The company reported a net cash balance of £17.9m for the period ending 30 June 2016, and since then some production has come on-stream, which should have reduced cash burn.
Nonetheless, compared to Premier, Pantheon is still in its early stages of life. Shares in the company are falling today after it reported that preparation works for the commencement of flow testing operations on the VOBM#2H and VOBM#4 wells have taken considerably longer than expected. While management expects flow testing operations should commence on both wells within the next fortnight, this setback will delay the company’s growth.
City analysts have pencilled-in earnings per share for Pantheon of 4.2p for the year ending 30 June 2017, rising to 13.3p for 2018. So, while today’s announced delay is a setback, it’s unlikely to derail long-term growth projections.
As Pantheon grows off the back of its expanding production profile, Premier is set to struggle over the next few years, according to City analysts.
Assuming the debt refinancing goes to plan, Premier is set to report yet another full-year loss for 2017 before returning to profit in 2018 if the price of oil remains stable. If oil prices drop further, all bets are off as Premier’s outlook could be revised significantly lower.
With this being the case, if I had to pick between Premier and Pantheon I would choose Pantheon. The company has a cash-rich balance sheet to help fund its exploration plans. What’s more, the firm is growing quickly via the drilling of new wells, unlike Premier that right now has to focus on debt repayment.
Still, Pantheon is not a sure thing. The firm has a lot riding on just a few prospects, and if things don’t go to plan at these wells, the company could quickly find itself in a sticky position. Even though Pantheon has cash on the balance sheet, this money may not last for long if production growth runs out of steam and the firm makes mistakes.
Overall then, despite today’s drop, Pantheon looks to be a better buy than Premier, but the shares are not for the faint-hearted.
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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.