Small cap oil explorers Providence Resources PLC (LON:PVR) and Europa Oil & Gas Plc (LON:EOG) shares jumped on Wednesday after landing separate farm-out deals with Cairn Energy PLC (LON:CNE) for project off Ireland's west coast.
Cairn is taking a 30% stake in Providence’s FEL 2/14 which contains the Druid exploration project, where drilling is planned this year - Cairn will now cover 45% of the well costs, up to US$42mln.
Meanwhile, Cairn will take 70% of Europa’s Licensing Option 16/19 by covering the costs of a US$6mln work programme, including 3D seismic.
It comes hot on the heels of Cairn’s latest Atlantic margin success, offshore Senegal, and is another significant endorsement for Ireland’s emerging oil sector after the likes of Exxon and China's national oil company staked new exploration ground in 2016.
Europa shares shot up 25.9% to 5.98p, while Providence shares climbed 7.3% to 16.36p.
Together Cairn and Europa will shoot 3D seismic in an under-explored area in the Atlantic margin off the west coast. Cairn is covering costs of the US$6mln exploration programme and in return it will earn 70% of the project (Licensing Option 16/19).
Significantly, LO 16/19 lies adjacent to Europa’s more advanced FEL 2/13 where the AIM quoted group’s prior 3D seismic programme identified some 1.5bn barrels of oil potential across three targets, and it is believed that the farm-out area contains similar features.
Europa at the same time continues to seek further farm-out deals for its other Irish assets (it has seven offshore licences comprising 20 prospects, estimated in excess of 4bn barrels of oil and 1.5 trillion cubic feet of gas).
Stockbroker WH Ireland analyst Brendan Long, in a note, said: “In our opinion, this is Europa executing a sensible long-term strategy, and shows that patient shareholders should be rewarded.
“This farm-out (and Cairn’s other farm-in today), is the first in Atlantic Ireland since 2013.”
Cairn’s deal with Providence sees the larger oil company agree to pay 45% of the costs of the upcoming Druid exploration well and in return it will earn a 30% stake in the project (on licence FEL 2/14). It is also paying US$2.82mln in cash, covering recent past costs for the project.
Druid, a 3.1bn barrels exploration target, is due to be drilled in June by Stena International’s IceMAX drill-ship.
There is also an option for a second well, and Cairn would pay 40% of that well’s cost (also up to US$42mln) if it goes ahead – at that point it will also earn the right to take over operatorship of the project.
Dublin based broker Davy highlighted that for Providence the deal news was positive.
“Cairn Energy is a pedigree explorer that is already familiar with the basin and its entry points to the quality of the Druid/Drombeg targets,” said analyst Job Langbroek.
SP Angel, meanwhile, described it the news as a “nice amuse-bouche”.
“Today's news of a farmin to the licence containing the Druid and Drombeg prospects (FEL 2/14), continues to underline the esteem in which the company's technical team are held, not to mention its knack for picking choice targets with significant prospectivity.
“That drilled is slated to commence in June this year is a clear indication that the company and its partners don't intend to hang around, all of which is good for news flow, and creates "opportunities for revaluation."
“As positive as today's news is, however, it is still somewhat overshadowed by the need for meaningful progress on Barryroe, which to our mind will not be too far away given the increasingly stable outlook for the oil price.
“Still, this is not to detract from today's news on Druid and Drombeg, which serves up as a tasty amuse-bouche to the Barryroe main course.”
Cairn and Providence are already partners offshore Ireland, in the Spanish Point appraisal project where the next programme is slated for next year.
Tony O’Reilly, Providence chief executive, said he was “extremely pleased” with bringing in a world class partner like Cairn.
“The addition of Cairn brings additional technical capabilities to the JV partnership, whilst providing Providence with additional financial and operational flexibility,” he added.
“This licence has attracted considerable interest and we continue to discuss possible further equity divestment with other material industry players.
“With the Stena IceMAX drill-ship already contracted, the JV partners are currently carrying out a pre-drill well site survey as well as finalizing all other key service contracts, together with requisite permitting and regulatory approvals, for the planned drilling operations in June."
Providence presently retains a 56% stake in the exploration project.