Irish oil explorer Providence Resources (PVR:AIM) is spinning the wheel offshore Ireland again as it commences drilling on the 53/6-A well chasing more than five billion barrels of oil. The shares are up 4.9% to 18.75p on the news.
The well will target two exploration prospects in the Porcupine basin, a geological feature in the Atlantic Margin to the west of Ireland. One, titled Druid, in the Palaeocene rock formation and the second, named Drombeg, in the deeper cretaceous formation. The first target should be hit around the end of July and the second at the end of August.
HISTORY REPEATING?
Shareholders have been here before with Providence. In 2013 the company drilled a well in partnership with ExxonMobil on the substantial Dunquin prospect which was also located in the Porcupine basin.
Pre-drill Dunquin had been estimated to contain as much as 8.4 trillion cubic feet of gas and 316 million barrels of associated liquids. Initial results were disappointing and follow-up drilling also failed to deliver.
Although farm-out agreements with larger partners only saw Providence meet a portion of the cost - the bill for drilling Dunquin was an eye-watering $200m.
Presently the operator with a 56% share, a sharp fall in drilling costs means this latest well has a budget of $42m. Following the results of the well French oil major Total has an option agreement for a 35% stake in return for $27m.
An earlier farm-out agreement with Cairn Energy (CNE) saw the latter agree to pay 45% of the costs of 53/6-A (up to the $42m estimated cost) in return for a 30% stake.
WELL CAPITALISED
Irish stockbroker Davy comments: ‘This, and the well costs, has been possible because of a worldwide slump in operational costs.
‘In turn, this means that Providence has secured a farm-in deal from Cairn Energy and a Total option payment, which together means that if the well stays within the guided $42m cost profile, it will remain well capitalised (estimated $30m cash) regardless of the well outcome. If Total exercises its option, Providence will hold 28% in the licence.’
Davy reckons if successful, Druid could be worth 96p per share and Drombeg 25p per share to Providence.
