Providence Resources PLC (LON:PVR) shares took another big hit on Monday, after the Irish explorer revealed that the second and final target in its exploration programme was found to be water bearing.
The Irish explorer was down 2p, 25.8%, changing hands at 5.75p and at one point had traded down to 4.81p, which was a new 52-week low.
It follows a similarly disappointing result for the well’s Druid exploration target.
The Irish exploration well will now be being plugged and abandoned.
"The 53/6-1 well results at the Drombeg level are disappointing and we will now assess these well data in order to understand what implications they have for prospectivity within the licence including in the underlying pre-Cretaceous Diablo Prospect together with other anomalies within FEL 2/14,” said Tony O’Reilly, Providence chief executive.
O’Reilly said that frontier exploration requires perseverance and he highlighted that more drilling will take place nearby – in the neighbouring licence – where the Chinese state explorer is targeting a play that’s similar to Providence’s untested Diablo prospect.
The negative impact of the exploration disappointment is somewhat mitigated by the fact that it was funded by some US$45mln of outside capital, provided by separate partnership deals with Cairn Energy and Total.
Attentions now turn to Barryroe
Providence still retains a significant amount of capital, thanks to the Cairn and Total deals, and, as a result the company may be able to move on from the exploration disappointment relatively quickly by returning to Barry, its would-be flagship project.
The company has spent several years trying to bring a partner into the Barryroe project, in the Celtic Sea off Ireland’s south coast, where it has a proven oil field and plans to build a large and significant production operation.
It is a big project that would eventually target some 100,00 barrels of oil production per day, and as such it is expected to have significant start-up capital costs.
Now, after the Druid-Drombeg disappointment, Providence appears to be taking more involved approach with plans to drill a new well.
Partnership deals are said to have been close to fruition in the past, and, in July, the company repeated that it was in “dialogue with a number of parties regarding advancing the appraisal of Barryroe through to first oil”.
It had previously been flagged that Barryroe may require further appraisal, and, thanks to the commercial deals before the west coast programme the company now has enough funds to get back to work at Barryroe.
Undeniably, a partnership deal will still be necessary to advance the large project into the development phase, nonetheless, positive appraisal well results would likely expedite negotiations and ultimately move the company closer to production.
Strategically, a successful programme may also buy the Providence management team sufficient time and good will to allow the broader Atlantic Margin exploration story to advance as the recent influx of international oilers take their new earlier stage projects forward.
Providence has been making preparations for the new Barryroe programme in recent weeks.
Investors will now await Providence’s financial results statement, due September 21, for further guidance on its Barryrow plans.
There may still be reason to look again at Drombeg
Whilst this programme has not delivered, for either Druid or Drombeg, analysis of the latter did provide a glimmer of positivity for future exploration.
The company highlighted that the presence of bitumen in drill cuttings was reported within the Drombeg reservoir interval and, according to Providence, this suggests the potential that there was an early oil charge in the reservoir but it was not retained in this particular location.
Drombeg is seen as a fan system, and it was noted by Providence that the positioning of the exploration well had prioritised the earlier target (Druid), with the decision to extend out to test Drombeg coming only after the budget increased as the Cairn Energy tie-up was agreed.
Indeed, the well had been described as ‘not optimally geologically located’ for Drombeg and it was said to be at the margin of the system.
Time and further analysis will tell whether or not there is any material follow up is warranted at Drombeg, or whether the exploration area is a write-off altogether.
Investors will, however, get a clue in the coming weeks as Total will now have 60 days to take up its option for a 35% stake in the frontier exploration licence. Similarly, Cairn has 60 days to decide whether to take up an option for a 20% stake in the separate Avalon prospect.
In the meantime, it looks like it will continue to be a volatile time for Providence shares.