Providence Resources (LON:PVR) was given a major boost this morning by Cenkos Securities, the company’s own broker, which reckons the shares are worth £16.54 each.
The bullish price target is underpinned by an aggressive drilling programme, which has the potential to transform the junior explorer. The stock was changing hands at 284 pence this morning, up 2.93 pence.
“The next two years will see a multi-well drilling program with 10 wells around the island of Ireland, each of which could be a game changer for Providence,” said analyst Will Dymot in a note to clients.
Providence’s expenditure will be around US$120 million, out of a total of US$500 million, and is being funded from the placing, reserves of around US$15 million and the cashflow generated by Singleton, an onshore field in West Sussex.
The campaign kicks off with a double header this summer as the group begins the development of the Barryroe and Hook Head oil discoveries in the Celtic Sea.
Providence owns exactly half of Barryroe and is partnered by San Leon and Lansdowne. The field was first discovered in 1974 by Exxon, but just didn’t have the sex appeal of some of the bigger projects in the North Sea in the early 1970s.
If there’s a theme to the Providence story, then it is that the market, technology and improvements to Ireland’s oil and gas handling infrastructure have all moved decisively in its favour.
So there is almost certainly a market for the slightly waxy light sweet crude contained at Barryroe. Exxon drilled two holes with a third being drilled by Marathon.
If the Celtic Sea plays out in the way anticipated – first oil is expected in 2013 – then the jungle drums will start beating. “It could deliver M&A opportunities,” O’Reilly concedes.
From these two development plays, the group will then turn its attention to two exploration plays – Dalkey Island off the coast of Dublin and Rathlin Island off the north-eastern corner of Northern Ireland.
Moving into next year and the emphasis changes from east coast to the west, and Providence is heading very much further offshore in the pursuit of oil and gas.
Spanish Point is a gas condensate discovery located 125 miles offshore. Meanwhile, those who follow Providence closely will know that Dunquin is the big daddy of all its exploration projects, and it has an all-star roster.
ExxonMobil is a 40 per cent shareholder and the operator, while ENI farmed in for a 40 per cent stake in 2009. SOSINA holds 4 per cent, leaving Providence with 16 per cent.
“Dunquinn is uber-large - it is an enormous 700 square kilometre structure,” boss Tony O’Reilly said in an interview with Proactive Investors.
“It is prognosed as gas, but it could have oil. It is considered an isolated carbonate platform so essentially a reef on a mound.
“This could be a game changer. If it comes in, it opens up the whole Atlantic margin.”
Previous industry intelligence suggest that recoverable estimates are near 1.8 billion BOE and that apparently is only ascribing volume to 20 per cent of the known area.
Work is expected to get underway on Dunquin in mid-2012 and will be followed in the autumn of next year by an appraisal well on the Dragon Field, which is equidistant between Wales and Ireland.
Cenkos says Providence looks undervalued based on its current production and this year’s fully funded drill programme, which are worth £418.6 million or £8.40 a share, Dymot says. That rises to £16.54 once the “risked value” of 2012 development and exploration assets are included.
“Overall, taking into account the whole profile on a risked basis, we see the potential enterprise value of Providence as £911 million or £18.28 per share,” Dymot told clients.
“Our valuations are on a risked basis and so there is significant upside potential on success as the program progresses.
“With such a multi-well program, the news flow will be regular with a constantly changing valuation based on results.”