Pantheon Resources: Land Sale Implies Shares May Be Substantially Overvalued

Pantheon Resources (OTCQX:PTHRF) is a London listed oil and gas exploration company with a primary focus on exploration stage assets in Alaska. Pantheon has approximately 193,000 net acres in Alaska, no production, and over $700 (USD) million market capitalization. The results of a recent lease sale in which Pantheon acquired 40,000 net acres imply that Pantheon may be substantially overvalued. And exploratory well production test results have been delayed.

Pantheon is Unusual

Pantheon is an interesting company to evaluate. Without production or proved reserves, the market attributes significant weighting to contingent resource estimates and geologic studies. These studies are highlighted in its presentation and illustrate favorable potential outcomes from the exploration and development of the fields (and some were paid for by Pantheon, as disclosed in the presentation).

There aren’t many publicly traded exploration-stage oil and gas companies these days, and there are few oil and gas companies traded primarily on the AIM exchange in London. This leaves the market with a gap in knowledge and experience in evaluating exploration stage, London listed oil companies.

Land Sale May Illustrate Transaction Value

In this context, it is helpful that there was a recent state land sale that included lands adjacent to Pantheon’s land position. Even more helpfully, Pantheon participated in that auction and successfully acquired some of those lands. They shared the price paid and their view that “these additions allow Pantheon to continue to strategically high grade its acreage based on the recent technical work completed by its team.”

The language “strategically high grade its acreage” is important because it indicates that the acquired land is as good as the rest of Pantheon’s land, or better. This makes the price paid for the land meaningful, as it shows the market value for land that is, per their own commentary, as good as or better than the rest of their acreage position.

Land Value From Sale Less than 1/100 Current Pantheon Market Cap

So how much did they pay? “Pantheon’s winning bids averaged US$28.00 per acre” for 40,000 acres. Pantheon owned 160,000 net acres prior to this acquisition, according to their presentation and filings. Using this $28/acre value for “high graded” acreage across the whole acreage position gets to an implied value of $4.5 million. Including the 40,000 acres recently acquired implies a value of $5.6 million. This is less than 1/100 the US $692 million market cap of the company.

Obviously, that does not include cash, the value of test wells drilled, or other infrastructure. But it is a signpost, using a recent transaction of adjacent, “high-graded” land, for the potential private market value of the land position. If Pantheon were to trade down to this implied land value, the stock price could decline 99% from its current price.

Without commercial production or proved reserves, and with published study conclusions (in Pantheon’s presentation!) publicly available for any other bidders in the recent auction to have evaluated prior to the auction, for now, this transaction value may be the best available signpost of Pantheon’s asset value.