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Providence Resources and Ireland's Atlantic gentrification

Providence has found itself in a trendy postcode, surrounded by wealthy neighbours - and now it has launched a new farm-out process.
A new license map from the Irish government sheds light on Providence’s seemingly improved position in the Atlantic.
Newgrange (in EL 6/14) is is ‘encircled’ by oil majors.

Like a property owner in an up and coming East London district, the Irish oil explorer suddenly finds itself in a trendy postcode, surrounded by wealthy neighbours.

Providence didn’t secure any new acreage in the Irish government’s first tranche of offshore licence awards, and it may not get any in the second and final tranche (in May) either.

Nevertheless, a cursory analysis of the new awards suggests the round is a very positive development for the AIM quoted explorer.

The licensing was said to be a very competitive process. In fact, it was Ireland’s most successful offshore round ever.

Investors following Providence may have been disappointed that the company didn’t bulk up its portfolio. But, a closer look at the awards tells a more encouraging story.

Before the awards there was nothing but hundreds of kilometres of open, unlicensed water between Providence’s Exploration Licence (EL) 6/14 - its most southerly exploration area - and EL 2/14 which is the next nearest, to the northwest.

A new license map, released by the Irish authorities this month sheds light on Providence’s seemingly improved position. Just take a look at this snippet from the licence map, above.

 

New partners are being sought via farm-outs in Atlantic margin

 

EL 2/14, the first blue-block (on the above map) to the north-west, is now flanked closely by Nexen and Exxon.

This is the location of the Druid and Drombeg exploration prospects which are now the focus of a newly launched partnering process.

Meanwhile, ExxonMobil, StatOil and the Chinese National Offshore Oil Company - via its Nexen vehicle - have licences jutting right up against Providence’s EL 6/14 which, located in the Goban Spur basin, hosts the Newgrange  project.

A 3D seismic exploration programme will later this year examine the Newgrange area more closely.

Currently, Newgrange is believed to be a ‘similar type’ of prospect to Dunquin North, where the discovery of a residual oil column proved the existence of a petroleum system. The prospect was most recently estimated to continue some 1.1bn barrels of potentially recoverable resources.

Providence has spent years seeking partners for its assets, and these new entries present a material validation. The new neighbours have financial clout. They can - at their own discretion – advance projects through to the exploration drilling phase expeditiously, so long as the early technical work warrants it.

In Friday’s statement, O’Reilly said: “the first phase offered awards demonstrate the material interest being shown in our core Porcupine exploration areas.”

“Importantly, the arrival of these new players validates Providence's Irish-centric exploration strategy and portfolio,” he added.

Further farm-out talks are underway and continuing for the Spanish Point project, a possible 337mln barrel gas condensate field, in FEL 2/04, in the North Porcupine basin.

Providence is already partnered with Cairn Energy in this appraisal project, where a well is slated for 2017. It is also possible that the Rhuadhan exploration prospect, located in an area adjacent to Spanish Point, could be incorporated to that project some point in the future.

Rhuadhan was recently seen in greater detail via 3D seismic, and is seen as potentially being bigger than Spanish Point.

 

Barryroe remains a decisive factor, farm-out talks continue

 

Barryroe talks are ongoing, and finally sealing a deal would make a big difference. Providence recently 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.

It said in February that it was considering a proposal from an alliance of contractors which could see a new Barryroe well drilled for just £16mln. The alliance was said to include a major rig operator, drilling management and a well service company.

It also confirmed talks with Petronas subsidiary Kinsale Energy, which owns the neighbouring Kinsale Head gas field.

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 production modelled in the order of 30mln cubic feet per day.

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.

 

Majors appear to share Providence’s hopes for Irish oil

 

Whether or not Providence’s farm-out process benefits from some kind of me-too effect following Ireland’s licensing round, or if it can strike a deal with one or more of the recent entrants, the picture certainly looks brighter.

In fact, harking back to the analogy of an incumbent property owner engulfed amid urban gentrification, Providence might not even have to do very much at all to see a stark increase in the value of its assets.

The Irish oil firm previously staked its portfolio on the belief that Ireland’s under-explored offshore could host large volumes untapped oil resources.

It now appears that some of the world’s largest oil companies share that belief.

Providence’s plan a, still seems to be proactive. But, arguably Providence could be more passive. It could wait.  As the neighbourhood comes up, Providence’s acreage could well come up with it.

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