Pantheon Resources issued the following update on Tyler County, East Texas.
Pantheon has been informed by the operator, Vision Resources, that drilling of the Vision William Baggett #1 ("VWB#1") well is now estimated to commence in July 2010. Vision has assessed that deferral of drilling operations may lead to improved total economics for the VWB#1 well. This is based on its analysis that rig demand should weaken leading to lower rig rates and drilling costs. This decision also reflects the potential for an upward natural gas price movement later in the year and thus higher unit revenues.
Geologically the Joint Venture's confidence both in the VWB#1 well and the overall Tyler County project remains undiminished. The VWB#1 well is designed to test two separate and independent formations, including the Austin Chalk as the main target. Either of these targets would justify drilling a well on its own merits. The ability, therefore, to test both with a single well at a modest incremental cost is compelling both from a geological and economic standpoint. Further studies conducted in recent months reinforce the JV's optimism for the well.
Vision has retained the JV's "first refusal" rights on two specialist rigs capable of drilling the VWB#1 well to the stringent standards specified in the well engineering plan. This well design was revised post the completion of the Vision Rice University #1 well. These rights confer on the JV the necessary flexibility to optimize its drilling program. This is especially beneficial during a period of shifting market circumstances. The options on either rig do remain subject to the operations of other companies.
The JV continues to be active in building its acreage portfolio in the region which remains an on-going process. This has led to the addition of material acreage which it considers of strategic importance. This further emphasizes the JV's positive view of its position.
Vision's analysis of a weakening rig market is based on declining natural gas prices feeding through to lower drilling activity. Paradoxically this has not occurred earlier with rig rates in the East Texas and North Louisiana area rising by up to 50% since the start of 2010. This is attributable to a major surge in the drilling of unconventional natural gas plays such as the Haynesville and Marcellus shales, which has led to utilization rates for horizontal rigs to be at or near record highs.
Jay Cheatham, CEO of Pantheon stated, "Pantheon is extremely sympathetic to the need to maximize returns for the well, the project and, crucially, its shareholders. The critical point for all of Pantheon's shareholders to appreciate is that this delay reflects purely the operator's assessment of a softening rig market in the coming months and the prospect of lower costs for drilling the VWB#1 well. Whilst anxious to commence drilling soon, the corollary of Vision's analysis is the potential for a material and beneficial impact on the well's NPV.
From Pantheon's perspective, I am sure that shareholders would agree with me wholeheartedly when I say that I am eager to drill the VWB#1 at the earliest appropriate moment to provide certainty as to its geological potential. Shareholders may be certain that Pantheon's management is looking for the earliest point of balance between economic efficiency and geologic certainty"
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