Talking with David Hobbs, Executive Chairman of Pantheon Resources about its 2 billion + barrels 2,000 + wells Alaska North Slope oil development

Pantheon Resources (London: PANR.L PTHRF) was a fairly controversial company until David Hobbs arrived last year and steadied the ship. Now with a complete and coherent plan in place, it's well worth a look. I spoke with David at the end of last week with a focus on how their ambitious project will be financed. We spoke about Proton Green too, a US company with potential in both the helium and beverage grade carbon dioxide industries. A transcription of the conversation follows:

JF: I’m talking today with David Hobbs, Executive Chairman of Pantheon Resources, a London-traded company with around a quarter of a million acres on Alaska's North Slope. It's got the potential for over 2 billion barrels of hydrocarbon liquids, with perhaps 2,000 wells. At the other end of the spectrum, David's also Chairman of Proton Green, which has around 170,000 acres in Arizona, with a 33 billion cubic feet helium reservoir, a 9 trillion cubic feet beverage-grade CO2 reservoir, and a basin with the potential to store 1 billion metric tons of CO2. Proton Green has recently reversed into a U.S. public company shell, and Pantheon is in the process of moving its trading venue to the U.S. too. Over to David.

DH: Good morning, James, and it's great to have an opportunity to talk with you.

JF: Thank you, David.

DH: So, you mentioned both Pantheon Resources and Proton Green, two very different companies, at different ends of the spectrum. At Pantheon, we've done a substantial amount of appraisal of two large fields, the Aphun field and the Kodiak field, and recently, Netherland, Sewell & Associates provided an estimate of the contingent resources in Kodiak, which were just shy of a billion barrels of recoverable marketable liquids, and the study on the Aphun field is ongoing. We hope to be able to release that in the coming months once they’ve completed their work, but as you say, the company's expectations are currently for an aggregate of around 2 billion barrels of liquid hydrocarbons to recover and produce into the Trans-Alaska pipeline, and we have reached that stage where the capital requirements step up. We estimate it's about $120 million to get to first oil production, probably a little more to get to the point at which the development becomes cash flow positive or self funding, and the strategy for raising that money is probably going to involve a listing on a U.S. stock exchange because with an American asset, it will be important for us to be an American company and exposed to American investors without any barriers to their being able to invest.

JF: The big issue, of course, is the financing, and I think that is the principal concern of investors. You've talked about vendor financing. How realistic do you think that is?

DH: Well, I think that there are two elements to it, we've talked about vendor and off-taker financing. So, let’s deal with the vendor financing first: based on our modelling, we estimate that there may be as many as 2,000 wells at $13 to $15 million cost per well, that's $25 to $30 billion of capital investment over a period of 10 to 20 years. That has a value to a contractor or vendor of having certainty of work and being able to do that work on some kind of gain-share basis, leading to it being a stable and profitable part of its ongoing business. And what we're seeking is to have vendors who are prepared to defer payment in the early startup period in return for a commercial coupon on that deferral and then repayment in the subsequent year in order to secure the work without having to go through the costs of competitive bidding, potentially lengthy negotiation of prices and renegotiations and re-tendering on an ongoing basis. The conversations we've had with some of the key potential partners in the development have indicated that there is a genuine possibility we can indeed raise a portion of the funding from that source. The other channel, that I described as off-taker financing, is by giving lifters of our production access to that stream on preferential terms, we can bring forward some capital from the off-take. And so, in aggregate, if everybody who's proposed something were to close on what they indicated, we might actually exceed the $120 million. Of course, that's the ideal world and the real world is somewhat messier, but as things stand right now, we are in material discussions with a number of players that have the potential to cover our aggregate capital requirement to first oil, but no guarantees.

JF: Right. But what really is the worry of a placing? I mean, if you're talking about 2 billion barrels and you've stated an objective for a market valuation of $5 to $10 a barrel, you're looking at basically a capitalisation of $10 to $20 billion. Now, I think currently you're capitalised around about the 200 million mark. Even if there was heavy dilution with a placing, the upside is quite significant.

DH: Well, that's exactly right. Although just on the basis of today's price, our market cap is around $300 million market capitalisation, just shy of 250 million pounds. By doing the right things in the right order, moving forward to get the regulatory process underway for getting the permits for offtake and production, moving forward in terms of having a clear defined start-up and ramp-up strategy that minimises the capital investment. By way of comparison, we expect to spend $120 million to first oil against $1.5 to $2 billion for the Pikka Horseshoe development and $6 to $8 billion for the Willow development, the two other major developments going on on the Alaska North Slope. You can see that the work that we put into making this a digestible development has already reduced the potential dilution of a placing by around 50%. And if we can bring forward some of the vendor financing and offtaker financing that brings the potential placement down to something much more manageable, then the amount of dilution that our existing shareholders will suffer will be substantially less. I think that I've got an obligation to current investors to seek to protect the value that they have in the asset, even if the fiduciary obligation is to the company, not to any specific class of investors, it's still the right thing to do to seek to minimise the amount of dilution necessary to get to production and to realise the value of $5 to $10 per barrel.

JF: Well, I think that's right because some of the recent dilution on AIM has been appalling. Discounts of up to 90% and it really just destroys the value of any existing shareholders’ holding and of course creates tremendous bad will against the company.

DH: I agree and, of course, I'm a shareholder. Since I joined the company, I've bought more than 2 million shares, partly in order to align myself with the existing investors and help provide confidence to them that I'm not about to do the old “kitchen sink job” where a new guy comes in, raises a hell of a lot of money at a big discount and says, sorry guys, it was a basket case and I had no alternative… and then try to judge myself against a low point that I may have had a part in creating. So, ethically, I think the right thing to do is to strain every sinew to minimise the dilution for existing investors, not to the extent that it threatens the viability of the company's strategy, but certainly to do the best I can for them and to align myself with investors so that then we rise or fall together.

JF: Okay. At which point do you think the capital raise would have to come? This year or would it be next year once it lists in the United States?

DH: Well, as we’ve just discussed, our intention is to minimise equity dilution. So, to the extent that equity investment is sought, I think it's a combination of both. The old adage that you never go bust because you had too much cash on the balance sheet rings true. Recently, with Chuck Yates at Digital Wildcatters, we talked about the very few CEOs who say, “I really regret having raised that money…” Their regret is generally that they didn't raise money when they had the opportunity to do so. And so, as we build and we create momentum and we create demand for the stock, we won't be afraid to place shares, with the intention of doing it at successively higher prices as we hit milestones and build material value into the company. It will be raising the right money at the right time in a way that, in aggregate, dilutes value for our existing investors to the least possible extent.

JF: Right. So, moving on to Proton Green, how do you see that one going?

DH: Well, Proton Green is a very different company. We merged into a listed company called Cyber App Development, but the name is changing to Proton Green so, imminently, the ticker symbol will be PRGN. The liquidity in the market prior to the uplist is negligible because all the shares are held in the hands of people locked in as a result of the reverse merger.

JF: Yeah, I noticed there was no ask.

DH: Of course and that's to be expected. So, it's given us a pause as a public company, but without any trade going on, to do all the right things in terms of putting in place the governance and getting our financing organized, etc. We're at a point where we're currently producing helium. Meanwhile we are contracting to start building liquefaction for the carbon dioxide. We've had a lot of approaches from customers wanting to buy beverage-grade carbon dioxide from us as there's a shortage, a structural shortage, in the United States right now. In addition, that's meant putting together the arrangements for the logistics, make sure that we can get it from St. John's in Arizona to customers predominantly in the western half of the United States. There is a lot of work going on and it’s all about execution. It’ll be a few months down the line that we'll have completed all the processes that get us to the point of uplisting. And at that point, there'll probably be some fundraise in the uplisting because we need to create liquidity in the shares and to broaden the shareholder base. But it's a similar company in the sense it's at the start of its development journey, got a very attractive resource, a very clear path to monetization of that and getting all the right partners in place to do it.

JF: And in addition to Pantheon moving its trading venue to the US, you're also moving to the US, David.

DH: Absolutely. I arrived, visa in hand, in the last two or three weeks, getting myself established. My wife's moving house just in time for spring in Houston.

JF: That all sounds very pleasant. It's been a pleasure talking with you, David.

DH: Thanks very much, James, and look forward to talking more in the future.

I've spoken with David a few times now over the past couple of months and he's a person of significant ability. Justin Hondris, Finance Director, is highly competent too. It's not possible at this stage to say how commercially successful the development will be, but once initially financed (which I think will happen) there's a good chance of a share price run up as operations approach. At this stage it still remains more of a gamble than an investment, but if the management team pulls it off, the potential upside is vast.