US-focused oil exploration and production (E&P) company Pantheon Resources (PANR:AIM) takes a bath as it encounters technical difficulties with its horizontal VOBM#2 well in East Texas.
The shares are down 34.3% to 98.6p – paring earlier losses which had seen them slip to 83.5p. Pantheon was the best performing stock on AIM in 2015, benefitting from earlier positive results on its acreage in the neighbouring Tyler and Polk counties in Texas.
On 28 July 2015 Pantheon began drilling operations on the VOBM#1 well after delays caused by flooding in its areas of operation. The shares started to really gather momentum in October 2015 when the results from testing on the well revealed a better-than-expected flow rate of 1,500 barrels of oil equivalent per day. Subsequent drilling up to this point has been equally encouraging, although in April 2016 we felt the shares had become too pricey.
The company had hoped horizontal drilling would increase recovery rates from its wells but as chief executive Jay Cheatham notes this plan ‘has not worked out as we expected and that technique will not be repeated’. Essentially the Eagle Ford sandstone was ‘abnormally abrasive’ to drill horizontally and destroyed drill bits after a few hours of service. Gross costs for VOBM#2 well are estimated to be between $5.6 million and $6 million.
The company will now revert to vertical drilling and plans to drill its next two wells as rapidly as possible so it can commence production.