Shares in Providence Resources took a kicking on Monday after the Irish explorer run by Tony O’Reilly jnr revealed its Drombeg prospect off the southwest coast was a “duster”, industry speak for dry, and would be plugged and abandoned within a week.
The news follows a similarly disappointing result for the company’s nearby Druid prospect and heaps further pressure on O’Reilly and his team, who are already on borrowed time with investors after several years of failing to deliver on a seemingly valuable set of assets in the Irish Sea.
O’Reilly tried to calm fraying nerves by noting that frontier exploration “requires perseverance” and by highlighting that more drilling would take place nearby – in the neighbouring licence – where the Chinese state explorer is targeting a similar play to Providence’s untested Diablo prospect.
The market wasn’t convinced. Within minutes of opening, the company’s shares nosedived 35 per cent in Dublin and by more in London, where it holds its main listing.
The collapse might have been worse only for one or two contrarian investors who apparently saw value in the stock, which traded close to 5 cent. Perhaps, they took heart from the fact that Drombeg was funded by $45 million in outside capital from Cairn Energy and Total, effectively cushioning Providence from the financial hit.
Either way, attention will now revert to Barryroe, the company's flagship prospect off the Cork coast, and undoubtedly the asset with the highest probability of success.
Freefall
Since 2012, Providence shares have been in freefall in part because of crashing oil prices but also because of its failure to secure a farm-out deal for Barryroe despite multiple signals to the contrary.
O’Reilly and the company managed to buy more time with investors last year with a $74 million capital raise , which was used to pay off debts and settle a legal dispute.
At the time, investor appetite was linked to a report by oilfield services firm Schlumberger, which pointed to an increased likelihood of a significant oil find at Providence's Druid/Drombeg oil field, now seemingly redundant.
Barryroe has, however, always been viewed as Providence’s most valuable asset. An independent technical report, known in the industry as a “competent person’s report” (CPR), based on an analysis of the existing exploratory drills to date, suggests that the prospect has potentially 330 million barrels of oil, which would work out at about $16 billion at current market prices.
But a question hangs over why the company has been unable to move such a lucrative asset forward by attracting a partner investor.
Is it because the company has chosen not to accept an offer or is it because the farm-out market has effectively dried up? Certain investors are said to be keen for the company to push ahead with the prospect on its own, noting it has the cash in the bank and the cost of drilling is cheap because of the market slump.
Providence recently put out a request for pricing on a rig for Barryroe, which could mean it has a partner lined up.
O’Reilly may reveal more at the launch of the company’s full-year numbers later this month.
