Stayin’ alive: 88 Energy, Pantheon batten down for price storm

Steve Sutherlin

Petroleum News

During the first quarter of 2020, the handful of small publicly traded companies operating in Alaska have made preparations to weather the low price environment and uncertainties thrust upon oil and gas markets by falling demand due to the COVID-19 pandemic, coupled with breakdowns of supply restraints by OPEC and related parties.

88 Energy - which is publicly traded on the Australian Securities Exchange, ASX - said in an April 20 announcement that its recent “prudent cost cutting measures” including cuts to board and management salaries have resulted in greater than A$750,000 in annual cost reductions across the company.

The company is the operator of Project Icewine on the North Slope, location of the recently completed Charlie 1 appraisal well.

Early in 2020, 88 Energy made a well-timed cash raise.

On Jan. 24, it announced that it had successfully completed a capital raise of A$5 million (before costs), with the placement made to domestic and international institutional and sophisticated investors through the issue of 238 million ordinary shares at A$0.021 per new ordinary share.

At the end of Q1 2020, 88 Energy said it had cash reserves of A$28.1 million, including cash balances held in joint venture bank accounts relating to joint venture partner contributions totaling A$19.4 million.

Premier Oil farmed in to Area A of Project Icewine in September 2019 in a full carry for 88 Energy up to US$23 million, in exchange for 60% of conventional potential in Area A, 88 Energy said, adding that it retains a 30% interest in the area.

Pantheon Resources

Pantheon said in an April 21 announcement, that in response to global events that have negatively affected the outlook for the oil and gas sector, it is reviewing its entire business to reduce non-essential costs.

The company’s board has implemented a 20% reduction in salaries across the company, it said.

“The directors are grateful to the employees and consultants for their support with this initiative which will last until such time as the board considers it appropriate,” Pantheon said. “These measures, together with our healthy cash balance and lack of debt or work programme commitments mean that Pantheon is resilient.”

The company believes it may have an advantage under current market conditions.

“While the oil and gas industry is presently facing serious challenges, the oil price decline has cast a spotlight on oil and gas assets that make sense in a low oil price environment,” Pantheon CEO Jay Cheatham said. “The significant achievements we have made since the beginning of last year give me confidence that our Alaskan assets become even more attractive to many oil companies as we estimate that our modeled break even costs are lower than most of the industry.”

Cheatham said Pantheon’s Alaska assets were advantaged by significant size and scale, being conventional oil as opposed to unconventional oil, and by an onshore location adjacent to infrastructure which could be brought onstream rapidly.

“It is my firm belief that these projects are material for any oil company,” he said.

Cheatham said travel restrictions and oil price reductions will impact the due diligence efforts of some companies including their ability to visit Pantheon’s Houston data room.

“These cost cuts allow us additional running room well into next year should farm out discussions unexpectedly drag on,” he said. “For the avoidance of doubt, our actions should not be interpreted that our farmout efforts have stalled, rather we are acting sensibly given present global uncertainties.”

“In fact, I am happy to report that we have received a number of enquiries from globally significant groups over the past month expressing interest in our projects, as well as favourable coverage in the U.S. press.”

Pantheon said it continues to seek a farm in partner for its Alaska projects, “where over US$200 million has been invested, to pay a meaningful up-front cash component as well as carried terms on future drilling.”

- STEVE SUTHERLIN