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Providence Resources brings in Chinese group to develop Barryroe

A Chinese consortium led by Apec Energy has agreed to take a 50% interest in the project
Barryroe is in shallow water in the Celtic Sea, 50km off the Irish coast

Irish oil explorer Providence Resources PLC (LON:PVR) has finally found a partner for its Barryroe project in the Celtic Sea.

A Chinese consortium led by Apec Energy has agreed to take a 50% interest in the project in return for the cost of three wells and associated side-tracks.

READ: Providence Resources and Lansdowne Oil & Gas shares soar as Barryroe excitement resurfaces

Apec will pay half of the well costs itself, with the remaining 50% financed by a non-recourse loan set against future cashflow from the prospect.

Providence holds 80% of Barryroe (which will drop to 40%) and is the operator of the project. Lansdowne Oil & Gas PLC (LON:LOGP) currently owns the other 20% (10% after).

The Irish oil group has been looking for a partner at Barryroe for at least five years.

Tony O’Reilly, chief executive, said the deal was a significant transaction that would allow exploration of the different parts of the Barryroe field and give it the tools to bring the field into production.

Providence, through its Exola subsidiary, will remain in charge of the drilling programme, though beyond the three well deal, Apec has the option to take over the development.

Apec is a privately-owned Chinese group that is working in partnership with COSL, a subsidiary of China state oil giant CNOOC, and state-owned investment group JIC.

As part of the deal, Apec will be issued warrants that if exercised (at 12p) would give it a 9.9% stake in Providence.

Barryroe question answered?

Providence shares were trading as high as 625p when the excitement over Barryroe was at its height in 2013.

The subsequent decline underlines how difficult it has been for the Irish company to move the project forward.

A weak oil price will have had some impact, but the Chinese commitment can see the field turn into a significant cash generator.

Six wells have been drilled at the prospect thus far – four by Esso/Exxon in the 1970’s, one by Marathon in 1990 and Providence/Lansdowne’s well in 2011/12.

Estimated resources are 311mln barrels of oil (ignoring gas) on a 50/50 chance or 2C basis.

Should the project now advance to production, as Providence now anticipates, then it will give it a strong cash generative base.

Based on past projections, the field is itself a very significant and potentially world-class asset with production estimated at an initial 30,000 barrels per day.

Formal closure of the farm-out is expected in the third quarter this year, after which the drill targets will be selected.

Steve Boldy, Lansdowne’s chief executive, added: "The Chinese Consortium brings a wealth of technical and operational expertise.

“Upon closing, Lansdowne will retain a net 34.5MMboe of contingent resources (2C) for its 10% ownership of Barryroe, with significant additional upside in terms of further exploration potential.

“The third party funded drilling program will look to convert a sizeable amount of these resources into proven and probable (2P) reserves ahead of subsequent development and production.

"With a current market cap of just $10M, Lansdowne’s valuation equates to less than $0.3 per contingent barrel for its 10% ownership.”

Lansdowne shares rose 38% to 1.82p and Providence 18% to 11.1p.


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