Cantor Fitzgerald analyst Sam Wahab thinks today’s news on two major commercial deals for Providence Resources PLC (LON:PVR) is a “significant step forward” for the offshore Ireland explorer.
In a note to clients, the analyst highlighted the AIM-listed firm’s two commercial updates today as “very positive”.
He pointed out that Providence Resources and its partner Sosina have agreed an exclusive option with French oil giant Total SA for an option on a 35% working interest in the Frontier Exploration Licence, FE 2/14 - which includes the Druid and Drombeg prospects - for a cash payment of US$27mln - 80% or around US$22mln to Providence.
READ: Providence Resources unveils two “transformative” commercial deals
Wahab said: “This is a significant step forward for Providence in our view, securing a key industry partner in the event of a successful well result this summer (Druid – estimated: 3Bnbbo prospective, Drombeg 1.9Bnbbo), with the downside risk protected through a material, upfront, cash injection.”
In addition, the Cantor analyst noted that the Ireland-based company has also agreed a 50% farm-out deal with Total for Licensing Option, LO 16/27 also in the southern Porcupine Basin, offshore Ireland.
The analyst pointed out that Providence has also agreed an option agreement with Cairn Energy PLC (LON:CNE) for the right to farm-in to a 20% working interest in LO 16/27, with the FTSE 250 firm having already signed a 20% farm-in deal for FE 2/14..
Wahab said: “Clearly, the entrance of both Total and Cairn serves to technically de-risk the Paleocene ‘Avalon’ exploration prospect.”
Further technical, financial and operational capability
He added: “Both companies will provide further technical, financial and operational capability to the LO 16/27 joint venture group, ahead of the much anticipated high impact exploration well at the nearby Druid block this summer. “
The Cantor analyst reiterated a ‘buy’ rating and 33p target price on Providence Resources shares, which were 7.5%, or 1.12p higher at 16.12p in late morning trading.
He concluded: “We expect the company’s shareholders to remain committed to Providence’s long term strategy ahead of an active period for the company”.