REG - Pantheon Resources - AGDC and PANR Sign Gas Sales Precedent Agreement

Pantheon ResourcesAnnouncement

05/06/2024 07:00

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RNS Number : 1243R  Pantheon Resources PLC  05 June 2024

 
 
 

The information contained within this Announcement is deemed by Pantheon
Resources PLC to constitute inside information as stipulated under the Market
Abuse Regulation (EU) No. 596/2014 as it forms part of UK law by virtue of the
European Union (Withdrawal) Act 2018 ("MAR").

05 June 2024

Alaska Gasline Development Corp. and Pantheon Resources plc

Sign Gas Sales Precedent Agreement

Pantheon Resources plc (AIM: PANR) ("Pantheon" or "the Company"), owner of a
100% working interest in the Kodiak and Ahpun oil and gas fields, and the
Alaska Gasline Development Corporation ("AGDC"), a state-owned entity leading
the development of the Alaska LNG Project ("Alaska LNG"), are pleased to
announce that Pantheon's wholly owned subsidiary, Great Bear Pantheon LLC, has
entered into a Gas Sales Precedent Agreement ("GSPA") with AGDC subsidiary 8
Star Alaska LLC.

 

Alaska LNG is a federally authorised integrated natural gas and LNG export
project under development, to deliver natural gas within Alaska and export up
to 20 million tonnes per annum ("mmtpa") of Liquified Natural Gas ("LNG").
AGDC is pursuing an option to phase Alaska LNG by prioritising the in-state
pipeline portion of Alaska LNG consisting of the 42-inch pipeline from the
North Slope to Southcentral Alaska to provide natural gas to avert the looming
energy crisis facing the region ("Phase 1"). Phase 1 of Alaska LNG does not
involve construction of an LNG plant, and as a result has a materially lower
capex requirement and construction timeframe, allowing gas transportation as
early as 2029. AGDC is aiming to undertake Front End Engineering and Design
ahead of a Final Investment Decision ("FID") planned for the middle of 2025.

 

Frank Richards, AGDC President, commented: "This agreement solidifies the
commercial foundation needed for the Phase 1 portion of Alaska LNG and
provides enough pipeline-ready natural gas, at beneficial consumer rates, to
resolve Southcentral Alaska's looming energy shortage as soon as 2029.

 

"Phasing Alaska LNG by leading with the construction of the pipeline will make
Alaska LNG's export components more attractive to LNG developers and
investors, and this agreement will help unlock the project's substantial
economic, environmental, and energy security benefits for international
markets as well as for Alaska. Today's announcement represents the culmination
of the committed work of Pantheon and AGDC leaders and enhances the prospects
of Alaska LNG in a way that benefits both the State of Alaska and Pantheon."

 

David Hobbs, Pantheon Executive Chairman, commented: "We are delighted to have
the opportunity to create a win-win for the State of Alaska and for Pantheon
as we turn the fantastic exploration & appraisal success of the past five
years into the development of two giant oil and gas fields on Alaska's North
Slope.  We are building a mutually beneficial long-term relationship with
Alaska LNG and with the State which seeks to supply much needed gas required
for Southcentral Alaska's energy needs, while at the same time realising the
value from our total aggregate contingent resources exceeding 1.5 billion
barrels of ANS blend and 6 Tcf of natural gas

 

"When we set out our strategy to achieve early production and cashflow on the
path to financial self-sufficiency, we considered gas monetisation as a path
to non-dilutive funding only one of several possibilities. However, the
availability of our pipeline quality associated gas created the opportunity to
bolster the Alaska LNG project, including the pipeline, LNG export facilities
and gas conditioning facilities. We are happy to be able to share the benefit,
thereby enhancing both Pantheon's and AGDC's project economics and funding
profiles. Our goal of demonstrating sustainable market recognition of $5-$10
per barrel of 1C/1P marketable liquids by end 2028 remains unchanged."

 

 Key GSPA Contract Provisions

The GSPA contains the key commercial terms to be incorporated into the binding
take-or-pay Gas Sales Agreement ("GSA") to take effect after FID, including:

 

·    Pantheon agrees to supply up to 500 million cubic feet per day
("mmcfd") of natural gas at a maximum base price of $1 per million BTU
("mmBtu") in 2024 dollars.

·    The minimum daily contract volumes that are used to calculate the
level of the take or pay obligation.

·    Plateau natural gas deliveries for 20 years, with the potential for
extension beyond that initial term.

·    The State of Alaska has several options to reduce the natural gas
unit price significantly by working with Pantheon to reduce the cost of
project financing and/or enable other commercial opportunities, as specified
in the GSPA.

 

Under the GSPA, both parties agree to negotiate the GSA in good faith based on
the agreed commercial terms. The GSA will be conditional on:

 

·    AGDC and Pantheon making affirmative FIDs for their respective
projects; and

·    Required permits and regulatory approvals are obtained for receiving
gas from Pantheon's fields into the Alaska LNG Project.

 

The GSPA is primarily focused on the potential Phase 1 portion of the Alaska
LNG Project, and also creates opportunities for Pantheon to benefit as the
full integrated Alaska LNG project, including LNG exports, is completed.

 

The initial term of the GSPA is until June 30, 2025 or until the definitive
GSA is executed, whichever comes first. It will automatically renew for
additional one-year terms until either party provides notice of termination,
effective at the next expiration date. AGDC and Pantheon will now begin
working on meeting all the relevant conditions for their respective parts of
the project to proceed within the planned schedule.

 

Key Implications of GSPA Execution

The base price in the GSPA represents potentially significant savings to
in-state consumers versus alternative supply options, with further savings
possible if the State of Alaska and Pantheon agree regarding additional
elements that allow reducing the gas price to below $1 per
mmBtu. Furthermore, securing financing for Phase 1 of Alaska LNG could
potentially increase commercial alignment for the complete project and thus
potentially provide additional demand for Pantheon's associated natural gas
above the initial 500 mmcfd plateau.

 

The GSPA potentially opens up additional funding pathways for the Alaska LNG
Project and the Ahpun field development activities. This may relieve Pantheon
of the need for equity dilution following FID, in line with the Company's
guidance to secure the path of least value dilution for existing shareholders.
The consequences of this approach are:

·    The Ahpun development scope can be expanded, with an accelerated pace
of ramp-up, to maximise production capacity of both oil and gas by 2028/29 in
line with in-State gas demand and the Alaska LNG schedule.

·    The full scope of the Ahpun development may lead to a requirement for
an Environmental Impact Statement ("EIS") - a process that could delay an
Ahpun FID beyond the current end 2025 target.

 

Ahpun initial field development project scope increase

Pantheon's previous initial Ahpun project development scope was focused on
developing 150-200 million barrels ("mmbbl") from 3-4 pads alongside the
Dalton Highway, modelled to plateau out at a rate of c. 40,000 barrels per day
marketable liquids. A development of that scale and footprint might
reasonably have been approved under National Environmental Policy Act ("NEPA")
with an Environmental Assessment ("EA") rather than an EIS, hence the early
target timetable for approval and FID.

 

Currently Pantheon plans to increase the size and scope of the initial
development to include the entirety of the Ahpun resource area - including, if
successfully tested in the recently proposed Megrez-1 well, Ahpun's eastern
topsets. If the classification of these eastern topsets were to move from the
prospective to contingent resources, the entire Ahpun development would exceed
a total aggregate 900 mmbbl of ANS Blend and 4.5 trillion cubic feet ("tcf")
of pipeline quality gas.

 

Management believes that full field development of the entire Ahpun resource
area may require an EIS due to its potential size and impacts. An EIS would
require between two and three years, most likely pushing first significant
development capital expenditures for Ahpun development to 2027 with production
start-up currently expected in 2028.

 

It has always been management's expectation that the Kodiak development was of
a scale that would require an EIS, hence its planned FID in 2028 and plans for
the completion of appraisal drilling in Kodiak during 2026 and 2027.

 

Update on Pantheon's funding strategy

The agreement with AGDC has provided Pantheon with potential additional
funding path flexibility with the overall goal of funding all expenditures
from FID to the point of cashflow self-sufficiency on terms better than could
have been achieved through the previously announced vendor financing.
Consequently, the Company sees no benefit in continuing those discussions as
part of an overall funding strategy. This would allow future service contract
discussions to focus solely on quality and cost of service without the need to
balance funding objectives.

 

Pantheon's management remain confident that planning on a conservative basis
remains the right approach and expect to be able to lay out the full strategy
for achieving funding to FID and beyond as originally planned, by the end of
June 2024.

 

In addition, the Company is working with Cawley Gillespie & Associates to
finalise their independent resource report on the Ahpun Topsets, which should
be completed and published in the following weeks.

 

 

Further information, please contact:

 

 AGDC                                                         +1 907 717 4978
 Frank Richards, President
 Tim Fitzpatrick, Communications

 Pantheon Resources plc                                                       +44 20 7484 5361
 David Hobbs, Executive Chairman
 Jay Cheatham, Chief Executive Officer
 Justin Hondris, Director, Finance and Corporate Development

 Canaccord Genuity plc (Nominated Adviser and broker)                         +44 20 7523 8000
 Henry Fitzgerald-O'Connor
 James Asensio
 Ana Ercegovic

 BlytheRay                                                    +44 20 7138 3204
 Tim Blythe
 Megan Ray
 Matthew Bowld

 

Notes to Editors

 

Pantheon Resources plc is an AIM listed Oil & Gas company focused on
developing its 100% owned Ahpun and Kodiak fields located on State of Alaska
land on the North Slope, onshore USA. Independently certified best estimate
contingent resources attributable to these projects are currently around 1.6
billion barrels of ANS blend. The Company owns 100% working interest in c.
193,000 acres. In December 2023, Pantheon was the successful bidder for an
additional c. 66,000 acres with very significant resource potential to the
west, reflected in NSAI's Kodiak IER and prospective resources to the east,
contiguous with the Ahpun project. Following the issue of the new leases,
which are expected to be formally awarded in summer 2024 upon payment of the
balance of the application monies, the Company will have a 100% working
interest in c. 259,000 acres.

 

Pantheon's stated objective is to demonstrate sustainable market recognition
of a value of $5-$10/bbl of recoverable resources by end 2028. This is based
on targeting Final Investment Decision ("FID") on the Ahpun field by the end
of 2027 or early 2028, subject to regulatory approvals, building to at least
20,000 barrels per day of produced liquids into the TAPS main oil line (ANS
crude), to achieve financial self-sufficiency and applying the resultant
cashflows to support the FID on the Kodiak field by the end of 2028.

 

A major differentiator to other ANS projects is the close proximity to
existing roads and the TAPS pipeline which offers a significant competitive
advantage to Pantheon, allowing for materially lower infrastructure costs and
the ability to support the development with a significantly lower pre-cashflow
funding requirement than is typical in Alaska.

 

The Company's project portfolio has been endorsed by world renowned experts.
Netherland, Sewell & Associates estimate a 2C contingent recoverable
resource in the Kodiak project that total 1,208 mmbbl of ANS crude and 5,396
bcf of natural gas. Lee Keeling & Associates estimated 3P/2C recoverable
volumes for Ahpun's Alkaid horizon totalling 79 mmbbl of ANS crude and 424
bcf.

 

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