An upcoming work programme on the Barryroe oil discovery could be one a game changer for Providence Resources (LON:PVR) according to Dublin-based broker Davy.
Earlier this week Providence, and its partners Lansdowne Oil & Gas (LON:LOGP) and San Leon Energy (LON:SLE), began work on a 3D seismic programme on the Barryroe oil discovery as a pre-cursor to drilling a well this summer.
Today in a note to clients Davy analyst Job Langbroek stressed the importance that this upcoming programme, not just for Barryroe but for several other known, but undeveloped, oil discoveries offshore Ireland.
“With success at Barryroe, there will be a gradual realisation that other parts of the portfolio offshore Ireland can also deliver,” the analyst said.
“This should result in a rapid unwinding of the 'Irish' discount.
“At this stage, the normal risk reward dynamic for exploration companies should apply, which is particularly strong in the case of Providence.”
For the un-initiated Providence is fully-funded and poised for the largest co-ordinated multi-basin drilling programme ever carried out offshore Ireland over the next two to three years.
Langroek highlighted that this busy schedule will ensure steady newsflow.
With some rank frontier exploration wells as well as the appraisal of several known oil discoveries, initially found in the 1970’s, the Providence work programme offers a broad spread of risk profile that should allow trading for all tastes, Langroek said.
The analyst adds: “Probably the most important element of this entire programme is that no one well will break the investment case; individually, however, any one well could make it.”
Indeed the analysts glowing recommendation is matched by a really punchy valuation.
First and foremost the analyst’s risked pre-drill valuation is 919 pence a share – almost four times the current price of 246p. However he reckons this could be much higher if the Barryroe drilling is successful, thus de-risking the stock.
Langroek puts Providence’s full un-risked value at £47.78 per share.
Taking through this lofty valuation the analyst said:“The risked value is some three times the current market price, while the unrisked value is over 15 times the current market price. We feel that these numbers clearly demonstrate the 'value leverage' angle in the stock.”