A disappointing outcome from Providence Resources' (PVR:AIM) hotly-anticipated well on the Dunquin prospect, located in the south Porcupine basin offshore Ireland, got a predictable response with the shares giving up 10.3% to 482p.

However the sell-off in the oil explorer actually looks pretty modest, certainly other unsuccessful wells have received a more negative reaction, suggesting investors had accepted Dunquin was an extremely high-risk play. It also reflects the fact that, as we explored in April, the share price is underpinned by the estimated value of its Barryroe field.

House broker Liberum Capital, which retains its 'buy' recommendation on the stock and a £22 price target despite today's set back, has a £19.86 a share valuation for Providence’s 80% stake in Barryroe. Focus is likely to turn to an ongoing farm-out process for this development which is set to conclude before the end of September.

The Dunquin well, in which Providence had a 16% stake, was operated by US super major ExxonMobil (XOM:NYSE) and will now be plugged and abandoned after its main target was found to be water bearing. Investment bank Jefferies, which like Liberum is a buyer but with a more conservative price target of 950p, takes some positives from the drilling results which provide evidence of a working hydrocarbon system (the elements necessary for the successful production of oil or gas) in the basin including 'reservoir', 'hydrocarbon shows' and 'breached trap'.

Davy, which shares broking duties with Liberum, comments that the well had a 16% chance of success so today's result shouldn't be too much of a shock. What is surprising is 'the presence of oil instead of gas and the confirmation of high-porosity carbonate reservoir [which] are important developments for the south Porcupine basin.'

Issue Date: 22 Jul 2013