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Five signs of life for Providences’ Barryroe field

The Irish oil firm rose over 30% on Thursday, alongside partner Lansdowne Oil & Gas, following a detailed update for its Celtic Sea assets: here, we take a closer look at the salient points.
Five signs of life for Providences’ Barryroe field
Providence could be boosted by a new well, gas possibilities and cheaper developments.

Providence Resources (LON:PVR) shares gained over 30% on Thursday after a comprehensive update regarding the Barryroe project and the oil company’s broader portfolio of assets in the Celtic Sea, off Ireland’s south coast.

The statement, which had a number of moving parts, comes just a week after the Irish government awarded new exploration licence options to some of the world’s largest oil companies - including China’s national oil company, Exxon, BP and StatOil.

In May, the second tranche of new licences will be awarded to explorers.

Providence, prior to the latest licensing, was the largest acreage holder in Porcupine basin in Ireland’s Atlantic margin. And, with a well potentially in the schedule for next year, it is involved in one of the more significant projects.

Investors, however, remain stoically focussed on Barryroe and the long awaited partnership deal that could trigger Ireland’s first oil field development.

Here we take a look at the highlight for Providence’s latest update.

1 - Still talking, but new opportunities are afoot

Barryroe talks are ongoing, of course they are. Years since the farm-out process began, investors are used to hearing this particular update from Providence, though one way or another a deal may be getting closer.

The company revealed that whilst it is still not in position to give more information about any envisaged deal structure, the current market for oil services is opening up opportunities for a potential new appraisal well.

Providence this morning told investors that it is currently considering a proposal from an alliance of contractors which could see a new Barryroe well drilled for just £16mln. The alliance includes a major rig operator, drilling management and a well service company, it said.

2 - Could now start going for gas too

Providence has confirmed it is now in talks with the owner of the neighbouring Kinsale Head gas field, Kinsale Energy, a subsidiary of Petronas (Malaysia’s national petroleum company).

Efforts at Barryroe to date have focussed on the oil, which is in separate reservoirs, but, the area is also known to contain gas.

Analysis by Providence has defined a resource of up to 400bn cubic feet of gas with the C-Sand reservoirs, and it has modelled production in the order of 30mln cubic feet per day.

For context, the nearby Kinsale Head, which is in decline from a 1995 peak rate of 99bcf per year, currently produces some 8bn cubic feet annually (which equates to about 22mln feet per day).

It is probably also worth noting that the Barryroe C-Sand gas resources would be larger than an exploration targeted by Petronas in a recent well. In August, Kinsale Energy and Lansdowne were partnered in the Middleton well which had targeted a possible 268bn cubic feet gas target, but it was unsuccessful.

The precise nature of the discussions between Kinsale Energy and Providence were not disclosed by the company, other than to say they were in regards to ‘potential development synergies’. Providence did, however, add that technical evaluations were also currently ongoing.

3 - It is welcome news for Lansdowne, SeaEnergy and even San Leon

Lansdowne’s shareholders took a sizeable hit in the wake of the disappointing Middleton well, losing some 80% to1.5p as the results coincided with the crude market’s capitulation.

It retains a portfolio of other Celtic Sea assets, but, a 20% stake in Barryroe is  very much the cornerstone, and without material progress there finding value for shareholder will be challenging.

Today’s update is therefore very timely, and as such the 33% share price rally is unsurprising.

SeaEnergy, by extension, also feels the benefit. The company, which once held the interest in the oil project under the Ramco Energy guise, remains a 18.6&% shareholder in Lansdowne.

Elsewhere, there’s San Leon which would be due a share of future profits from Barryroe should the project come to fruition. It has a 4.5% net profit interest (NPI), but it would not be liable for any appraisal or development costs.

The NPI itself might, in theory, become a sellable asset for San Leon should Barryroe progress.

4 – Other smaller, low cost developments are also possible

Alongside partner Marginal Field Development Company (MFDevCo), which is 50% owned by Nu-Oil and Gas (LON:NUOG), Providence is looking at the possibility of developing the Helvick and Dunmore project.

Providence confirmed it had been given a new two year lease for both projects, which triggers the previously agreed partnership.

And, as MFDevCo advances its planned work to deliver low cost field development solutions for the projects, and as those projects move towards production, the company can earn up to an additional 40%.

5 - Ireland’s new oil and gas awakening

Providence’s Celtic Sea projects are distinctly different to its large acreage position off Ireland’s South West, in the Porcupine basin, nevertheless, the Irish oil sector generally is set to benefit from the influx of new entrants.

Ireland’s new oil licensing, first tranche of which was unveiled last week, has already brought in China’s national oil company (via CNOOC’s Nexen vehicle) as well as ExxonMobil, BP, StatOil, and …..

These companies are drawn to Irish waters by the promise of deep water exploration succes, following blueprints of discoveries in similar geology on the other side of the Atlantic.

But, merely the presence of several more large oil companies must be positive for operators.

Should one or two of these companies seek to establish long term oil business in Ireland, why not start with a position in a relatively near term oil field development?

It is a bit early yet to be calling the heightened interest in the Irish offshore a ‘boom’, but, clearly it represents a positive for everyone already in Ireland’s oil sector.

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