30th Mar 2007 18:06
Pantheon Resources PLC30 March 2007 PANTHEON RESOURCES PLC INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2006 CONTENTS Page No Chairman's Statement 1 Consolidated Income Statement 7 Consolidated Balance Sheet 8 Consolidated Cash Flow Statement 9 Notes to the Financial Statements 10 Pantheon Resources plc - Interim results Preliminary Results for the period Ended 31 December 2006 Pantheon Resources plc ("Pantheon" or "the Company"), the UK based independentoil and gas exploration company focussed on the U.S. Gulf of Mexico region,today announces its maiden interim results for the period ended 31 December2006, Executive Chairman, Sue Graham, commented: "Pantheon has encountered mixed fortunes in the six month period ended 31December 2006. Drilling on the deeper zones of the Plum Deep prospect on thePadre Island Project Area ("PI Project Area") proved disappointing ultimately,despite initial encouragement. Core analysis conducted in early 2007 confirmedvery low permeability in the three deepest zones due primarily to the presenceof calcite cement. With these zones of Plum Deep deemed to be non-commercial, adecision has been made to take an impairment charge against this prospect ofUS$5.83million. Indications of a shallower natural gas bearing zone in Plum Deep were recordedover a 25 feet interval. Testing of this fourth shallower zone will be initiatedonce the results of the Wilson well are known. This zone compares with thosetested successfully elsewhere on Padre Island. Research is in progress to determine if the very low permeability encountered inthe deep section of Plum Deep is a localised occurrence or if it has regionalimplications that might impact on the other deep prospects. Until this isresolved then drilling on the remaining deep prospects is being held inabeyance. It should be emphasised that no conclusions have been reached as yet. Pantheon has been informed by the Operator of the PI Project Area that leasesover both the Murdoch and Kingsway prospects are due to expire during 2007. Italso indicated that at this stage it is unlikely that drilling will be initiatedprior to the expiry dates. In this event, the leases would automatically lapse.Further, while the Joint Venture may reapply for the leases in question, thereis no guarantee that it would be successful. Pantheon thus takes the view that it would be fiscally prudent to write-down itscarried forward expenditure on these leases. This has led to the decision totake a further impairment charge of US$0.277 million. On a more positive note, Pantheon has commenced drilling on the Wilson prospectin the PI Project Area since the period end. This target differs from Plum Deepas it is targeting a shallow prospect in the Upper Frio system. Similarprospects have been found to be productive elsewhere on Padre Island. Pantheonhas increased its WI to 31.77%, subject to final documentation. Results to date have provided encouragement. During drilling through the firstof three objectives, a "kick" was taken and natural gas flowed to surface. As aresult of subsequent mechanical problems, the well has now been deviated. Theprospective natural gas zone is being re-drilled and evaluated with electriclogs. The electric logs will enable the identification of any gas/water contactand thereby the thickness and quality of the natural gas zone. However, thefinal outcome remains dependent on the results of further drilling/logging. Positive news has occurred on Pantheon's other venture, Project Wharton.Commercial success was achieved, with three of four wells drilled during theperiod encountering natural gas. First natural gas to Pantheon was recorded onSeptember 29 2006 when the Zebu field (Pantheon 9.375%) was brought on-stream.This was augmented by the commissioning of the Mohawk field (Pantheon 18.75%) onDecember 1 2006. Average production to Pantheon on a working interest basistotalled 16.5 thousand cubic feet a day ("mcfd") for the six months ending 31December 2006. Since 31 December 2006 the Caddo well (Pantheon WI 18.75%) was broughton-stream. This has nearly tripled Pantheon's net production on a WI basis. Netoutput averaged 113 mcfd in February 2007 compared with 42 mcfd in January 2007.A further well, Kant, was drilled (Pantheon 18.75%). This was plugged andabandoned as non-commercial. Impairment charges of £0.277 million have beentaken against both the Dakota and Kant wells. Pantheon expects further drilling on its Project Wharton acreage in 2007. TheCompany has a further 13 prospects remaining on its acreage. The Baptist well(Pantheon 11.25%) spudded on March 29, 2007. In addition, three wells areplanned in and around the discoveries made to date. Management recognises and shares the disappointment and uncertainty createdaround the deep section of the PI Project Area. These have only served tointensify Pantheon's efforts to secure other ventures with the potential toenhance shareholder value. At present, the Company is analysing a number ofopportunities. The Company re-affirms its strategy of focussing on the near andonshore Gulf of Mexico region in conjunction with established operators.Pantheon intends to spread its risk and enhance the probability of successthrough holding small working interests (10-25%) across its explorationportfolio. Pantheon also re-iterates its intention of keeping its corporate overhead costsas low as possible by having very few full time staff at this early stage in itscorporate development. It is the Company's intention to increase its managementand staffing levels as the Company evolves." Chairman's Report Pantheon Resources plc ("Pantheon") was formed in 2005 to be an independent UKbased oil and gas exploration company focused on hydrocarbon producing basinsonshore or near shore the Gulf of Mexico ("GoM"). Pantheon's initial focus was on the deep geological plays under and around PadreIsland, south Texas. Pantheon entered into a Farmout Agreement which providedthe right to participate initially in six specific, defined exploration targetswhich were ready for drilling from a geological and geophysical perspective.Pantheon is paying 33.33% of the costs associated to casing point with each ofthe wells to earn a 25% working interest. In June 2006, Pantheon expanded its operations by farming-into a natural gasexploration venture in Wharton County, south Texas, located broadly betweenHouston and Corpus Christi. This venture is operated by the Everest ResourceCompany ("Everest") which has a long and successful history in the Texas GulfCoast Area. The Project Wharton farm-in comprised three prospects initially. InDecember 2006, this was expanded to six through a further farm-in. The prospects have been identified using high-quality 3D seismic. Each of theseis of an order of magnitude lower in terms of estimated size and of lower risk.Reserves estimates per well range from 0.5 to 4.0 billion cubic feet ("bcf").This farm-in was considered complementary in terms of risk to the high impact PIProject Area. The exploration risk is regarded as low, with probability ofsuccess ranging from 50-80%. Each well has multiple objectives. As not allobjectives have been included in the evaluation, this provides additional upsidepotential PI Project Area The Kindee ST 212#1 well on the Plum Deep structure commenced drilling on August1, 2006. This well reached target depth of 16,392 feet (measured depth) onNovember 15, 2006. Well logging identified four natural gas bearing zonesspanning 1,000 feet, which initiated a flow testing and coring programme. One ofthese zones was at a shallower depth than the other three. A decision was madeto sidetrack the well and focus the testing programme on the three deepest zonesinitially. A conventional core in a sidetrack well was retrieved. Initial analysis of thiscore indicated that the interval primarily to be inter-bedded silty sandstoneand siltstone, with thin beds of sand and shale. Preliminary interpretation ofthe DST in the shallowest of three potential zones confirmed the presence of atight reservoir formation. Preliminary determination of porosity andpermeability showed this zone to be primarily water wet, and unlikely to beproductive as a reservoir. At 31 December 2006, drilling to the next planned core point was underway. Withthe deeper zones of Plum Deep deemed to be non-commercial, a decision has beenmade to take an impairment charge against this prospect relating to costsincurred up to and including 31 December 2006. This amounts to US$5.83 million. Project Wharton During the six months to end December 2006, four wells were drilled on ProjectWharton and a fifth commenced drilling. Three (Caddo, Mohawk and Zebu) weresuccessful, discovering natural gas, with one (Dakota) plugged and abandoned asnon-commercial during the period. The fifth well (Kant) was spudded on 29December and completed in early January. This well was declared non-commercial.It has been decided to take an impairment charge of US$0.277 million againstboth the Dakota and Kant prospects. Two of Pantheon's three discoveries were brought on-stream during the period.First natural gas production to Pantheon flowed on September 29, 2006 when theZebu field was brought on-stream. This was augmented when the Mohawk well wascommissioned on December 1, 2006. Pantheon's net natural gas production on aworking interest basis ("WI") averaged 16.5 thousand cubic feet a day ("mcfd")during the six months ended December 31, 2006. Table 1 shows Pantheon's historicmonthly net production on a WI basis Table 1: Monthly Net Production on Working Interest Basis (mcfd) Jun Jul Aug Sept Oct Nov Dec2006 - - - 2.1 33.5 28.3 35.1 Zebu (Pantheon 9.375%): Zebu #1 was discovered in August 2006 and commencedproduction on September 29, 2006. Zebu discovered natural gas in two Frio sands.The decision was made to produce from the deeper zone at around 4,280 feet ("ft"). The primary objective, which encountered natural gas at around 3,750 ft,remains to be completed for production. The Joint Venture intends to producefrom the secondary zone until depleted and then complete the primary zone higherup the well bore. Dakota (Pantheon 18.75%): Dakota #1 was plugged and abandoned as non-commercialin late September 2006. Both natural gas and formation water were recovered fromthree zones. Mohawk (Pantheon 18.75%): Mohawk #1 was discovered in October 2006 and broughtonstream on December 1, 2006. Mohawk #1 encountered natural gas in both itsprimary and secondary Frio objectives. Caddo (Pantheon 18.75%): Caddo #1 encountered natural gas in a shallow Frioformation at around 4,470 ft and was completed for production testing inNovember, 2006. Kant (Pantheon 18.75%): This well was plugged and abandoned as non-commercial inearly January 2007, having spudded on late December 2006. Hydrocarbons werepresent in the primary objective. However the well was deemed non-commercialdue to low natural gas saturation and thin reservoir sands. Post-Period End Events Subsequent to the financial year-end, Pantheon has been active on both itsproject areas. PI Project Area Plum Deep At the beginning of January 2007, a second core was taken in the deepest zonewhich spanned over 800 gross feet. A comprehensive logging and samplingprogramme was undertaken once the well reached target depth of 15,450 feet(measured depth). This programme determined that the deepest three zones in thesidetrack well were non-commercial, despite the encouraging preliminaryindications. Consequently the sidetrack was plugged and abandoned. Core analysis results were received in January 2007. These confirmed that thesands in the deep section of Plum Deep have very low permeability. This is dueprimarily to the presence of calcite cement. For Plum Deep, this means that thedeep reservoirs sampled are non-prospective. Research is in progress todetermine if this is a localised occurrence or if it has regional implicationsthat might impact on the other deep prospects. Testing of Plum Deep's shallow zone, located behind the 7-inch liner, will beinitiated once the results of the Wilson well are known. If testing is requiredon Wilson, the same rig would be used on both wells. This would deliver costsavings. Wilson The Kindee ST 212 #1 well on the Wilson structure was spudded on 7 February 2007(Texas, USA). The planned total depth of the well is 12,400 feet (measureddepth). Wilson is the second in a multi-well programme. It is targeting ashallow prospect in the Upper Frio system. Similar prospects have been found tobe productive elsewhere on Padre Island. Pantheon has increased its WI to31.77%, subject to final documentation. During drilling a "kick" was taken and natural gas flowed to surface. Standardwell control procedures were taken. The well was shut in and the drilling fluid(mud) weight increased before cont continuing to drill through the prospectivenatural gas zone. Subsequently a water influx caused the mud properties todeteriorate. This resulted in the drill string becoming stuck in the bottom ofthe well. A decision was made to stabilise the well by running 9 5/8 casing. The well is now being deviated. The prospective natural gas zone is beingre-drilled and evaluated with electric logs. The electric logs will enable theidentification of any gas/water contact and thereby the thickness and quality ofthe natural gas zone. This zone is the first of three objectives in the well and the results to dateare very encouraging. However, the final outcome remains dependent on theresults of further drilling/logging. Murdoch/Kingsway Pantheon has been informed by the Operator of the PI Project Area that leasesover both the Murdoch and Kingsway prospects are due to expire during 2007. Italso indicated that at this stage it is unlikely that drilling will be initiatedprior to the expiry dates. In this event, the leases would automatically lapse.Further, while the Joint Venture may reapply for the leases in question, thereis no guarantee that it would be successful. Pantheon thus takes the view that it would be prudent to write-down its carriedforward expenditure on these leases. This has led to the decision to take afurther impairment charge of US$0.277 million. Project Wharton Pantheon's third natural gas field, Caddo, commenced production on February 8,2007. The Company is now producing from three natural gas fields, Caddo, Mohawkand Zebu. Pantheon's production on a WI basis has nearly tripled since Zebu wasbrought onstream in late September 2006 (see table 2). This natural gasproduction represents an important income stream for a small company such asPantheon with attractive near term financial returns. Table 2: Monthly Net Production on Working Interest Basis (mcfd) Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec2006 2.1 33.5 28.3 35.12007 42.1 113.1 Drilling Programme The Company has at least a further 13 prospects on its Project Wharton ventureremaining to be drilled. Pantheon commenced drilling another exploration well,Baptist, on March 29, 2007. A further three wells in and around the discoveriesare currently scheduled for 2007. The current three discoveries, combined withthe increased exploration efforts, hopefully will yield higher natural gasproduction in 2007. Prospect Pantheon Working Interest Status Zebu #1 9.375% ProducingCaddo #1 18.75% ProducingDakota #1 18.75% P&A non-commercial showsMohawk #1 18.75% ProducingBaptist #1 11.25% DrillingKant #1 18.75% P&A non-commercial shows Source: Everest Resource Company The Caddo #1 discovery is a particularly important. It is located in an area ofmutual interest that covers a large area where six other prospects exist. Thesetarget comparable Yegua and Frio anomalies, but Miocene objectives are alsopresent in all of them Seven additional prospects are located on the Dakota area of mutual interest ("AMI") which covers around 1,950 acres. These still remain attractive targets forfuture drilling. As these are not subject to the farm-in terms, they would havea higher value to Pantheon. The success at Mohawk has led the Joint Venture to plan to drill another Mohawkwell. The Mohawk #2 will test a slightly smaller amplitude anomaly (30 acres) at4,075 ft that is very similar to, but fault separated from the Mohawk #1anomaly. All the additional prospects in the Caddo, Dakota and Mohawk AMIs are notsubject to the farm-in terms. This means that these would have a higher value toPantheon, if successful. CONSOLIDATED INCOME STATEMENTFOR THE PERIOD ENDED 31 DECEMBER 2006 (Unaudited) (Audited) Six months ended Period ended 31 Dec 2006 30 June 2006 £ £ NoteRevenue 6,823 - Amounts written off against (3,260,859) -assets Gross profit (3,254,036) - Administrative expenses (444,240) (400,049) Operating loss (3,698,276) (400,049) Interest received 149,833 60,535 Loss before taxation (3,548,443) (339,541) Taxation - - Loss for the period (3,548,443) (339,514) Loss per share 2 (22.82)p (8.33)p CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2006 Notes (Unaudited) (Audited) 31 December 2006 30 June 2006 £ £ £ £ASSETS Non Current AssetsIntangible assets 5 911,074 1,818,024Tangible Assets 6 2,077 - Current AssetsTrade and other receivables 4 125,253 109,907Cash at bank and in hand 3 5,348,887 5,474,140 8,409,699 8,519,606 Total Assets 6,387,292 10,337,630 Capital and ReservesCalled up share capital 8 155,524 155,524Share premium account 9 9,698,748 9,698,748Retained Loss 9 (3,887,957) (339,514)Other reserves 9 161,513 161,513 6,127,828 9,676,271 Total Equity Current LiabilitiesTrade and other payables 7 220,975 - 661,359Other Liabilities 38,489 259,464 - Total Equity and 6,387,292 10,337,630Liabilities CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 31 DECEMBER 2006 (Unaudited) (Audited) Six months ended Period ended 31 December 2006 30 June 2006 £ £ Operating loss (3,698,276) 312,916Add back: depreciation, depletion costs 4,385 -Increase in receivables (15,348) -Decrease in payables (405,922) -Add back: amount written off investments 3,260,859 - Cash outflow from operations (854,302) 312,916 Cashflows from investing activitiesInterest received 149,833 60,535Net funds used for investing in exploration (2,353,574) (1,818,024)Expenditure on tangible assets (2,769) - Net cash inflow from investing activities (2,206,510) (1,757,489) Cash inflow from financing activitiesProceeds from issue of shares - 10,420,061Issue costs - (565,789) - 9,854,272Net cash used in operating activities Net increase in cash and cash equivalents (3,060,812) (8,409,699)Cash and cash equivalents at the beginning of the period 8,409,699 - Cash and cash equivalents at the end of the period 5,348,887 (8,409,699) NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 DECEMBER 2006 1. Basis of preparation The interim financial information for the six months ended 31 December 2006,which has been prepared in accordance with the historical cost convention and inaccordance with applicable accounting standards, is unaudited and does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. It has been prepared using accounting bases and policies consistent withthose used in the preparation of the audited financial statements for the Groupfor the year ended 30 June 2006. It was approved by the board of directors on 31March 2007. The comparative figures for the period ended 30 June 2006 are extracted from thestatutory financial statements which have been filed with the Registrar ofCompanies and which contain an unqualified audit report. The group financial statements are prepared in UK pound sterling. These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards, as adopted by the European Union ("IFRS") and inaccordance with the Companies Act 1985. Basis of Consolidation The consolidated financial statements include the financial statements of thecompany and each of its subsidiary undertakings after having eliminated allinter-company transactions and balances. Foreign Currency translation Transactions in foreign currencies are translated into sterling at the rate ofexchange ruling at the date of the transaction. Monetary assets and liabilitiesare translated at the rate of exchange ruling at balance sheet date and theresultant exchange gain or loss is dealt with in the income statement. Exploration and development costs All costs associated with oil, gas and mineral investments are capitalised on aproject by project basis, pending determination of the feasibility of theproject. If an exploration project is successful then related expenditure willbe transferred to mining assets and amortised over the life of the project. Whena licence is relinquished or a project abandoned, the related costs are writtenoff. Where the group maintains an interest in a project, but the value of theproject is considered to be impaired, a provision against the relevantcapitalised costs will be raised. Taxation No liability to UK or overseas taxation has arisen during the period and noprovision for deferred tax was considered necessary. 2. Loss per ordinary share The basic loss per ordinary share has been calculated using theloss for the financial period of £3,548,443 (period ended 30 June 2006 - loss of£339,541) and the weighted average number of ordinary shares in issue of15,552,329 . 3. Cash and Cash Equivalents 31 Dec 2006 30 June 2006 £ £ Cash in bank and at hand 5,344,295 8,033,232Cash equivalents 4,592 376,467 5,348,887 8,409,699 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 DECEMBER 2006 4. Trade and other receivables 31 Dec 2006 30 June 2006 £ £ Other receivables 39,510 36,450Prepayments and accrued income 85,745 73,457 125,255 109,907 5. Intangible assets The movements during the period were as follows: £Cost As at 1 July 2006 1,818,024Additions 2,353,909 At 31 December 2006 4,171,933 ImpairmentImpairment during the period (3,260,859) Net book valueAt 31 December 2006 911,074 6. Tangible Fixed assets £CostAt 30 June 2006 -Additions 2,769 DepreciationAt 30 June 2006 -Charge for the period 692 At 31 December 2006 692 Net book valueAt 31 December 2006 2,077 The Directors have assessed the value of the exploration and appraisalexpenditure carried in the accounts as intangible fixed assets and in theiropinion no provision for impairment is necessary. NOTES TO THE FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2006 7. Trade and other payables 31 Dec 2006 30 June 2006 £ £ Other payables - 36,959Accruals 220,974 624,400 220,974 661,359 8. Share Capital 31 Dec 2006 30 June 2006 £ £ Authorised1,000,000,000 ordinary shares of 10,000,000 10,000,000£0.1 each Allotted, called up and fully paid 15,552,329 ordinary shares of £0.1 155,524 155,524each 9. Reserves The movements in the reserve accounts and profit and loss accounts during thesix month period were as follows: Other Reserve Share Premium Profit and loss £ £As at 1 July 2006 161,513 9,698,748 (339,514) Net loss for the period - - (3,548,443) Balance as at 31 December 2006 161,513 9,698,748 (3,887,957) 10. Post Balance Date Events In January, 2007 it was announced that the deep section of Plum Deep was deemednon commercial and it was announced that the Kant prospect in Wharton countywould be plugged and abandoned as non commercial. The group has taken thedecision to record an impairment charge equal to the total carrying value ofthese prospects as of 31 December 2006. The group has also recorded an impairment charge equal to the total carryingvalue of the Kingsway and Murdock prospects due to lease expiries. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pantheon Resources plc