Providence Resources PLC (LON:PVR) has in the past seen multiple avenues to develop the Barryroe project end in frustration - but a new agreement offers its new management team fresh hope.
Amidst the unprecedented turmoil of the coronavirus and generationally low crude price, it now appears to have one more lifeline.
In a statement, on Monday, Providence announced a US$3mln equity funding which can keep the Irish oil firm afloat into 2021 (so long as shareholders approve the proposal).
Significantly, it comes alongside a preliminary agreement with Norwegian firm SpotOn Energy which will now have until October to solidify plans to finish the appraisal of Barryroe.
The hope among Providence investors is that this will be a farm-deal that sticks after prior deals, including the most recent China-funded scheme did not.
Interestingly, as Providence and SpotOn negotiate on binding commercial terms, this is different to the deals that’ve been lined up in past.
The Norwegian firm is said to “take a progressive approach to cost-effective offshore oil and gas field development”. The translation and rationale is quite simple.
SpotOn is effectively an engineer and project facilitator. As highlighted in Monday’s statement, the proposed new Barryroe partner works with a consortium of “world leading services providers” to deliver offshore projects.
Specifically, SpotOn is said to have extensive experience designing and constructing semi-submersible drilling rigs for the North Sea, along with the design, development and management of offshore facilities.
So, through the proposed tie-up with Providence, SpotOn is effectively creating and managing its own pipeline of project work while retaining exposure to the underlying Barryroe asset base. For starters, as part of the new equity raise it is to buy £300,000 of Providence shares.
Such DIY approaches to business development will be somewhat familiar to those following the sector in previous downturns.
When demand for services drops out, and, the lower hanging fruit of traditional contracted work dries up, it makes increasing economic sense for contractors to take on the risk/reward of proprietary projects rather than idle and mothball equipment and capacity.
Such arrangements provide synergies and solve problems on each side of the deal.
The engineer ideally gets an ‘oven ready’ project, with the subsurface expertise attached, and importantly a schedule of work laid out, meanwhile, the explorer lands both project funds and low-cost, intrinsically incentivised contractors as a job-lot.
Investors in Providence will no doubt remain cool, after all this isn’t the first ‘new dawn’ for either the company or the project.
Nonetheless, Monday’s deal significantly removes pressure and uncertainty for the foreseeable future - on the back-end of the current turmoil, investors will be keen to see what becomes of this encouraging, preliminary new partnership for offshore Ireland.