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Welcome boost for Providence as it prepares to begin work on Barryroe

Ian Lyall - Proactive Investors

Providence Resources (LON:PVR) said today there could be up to 300 billion cubic feet of gas in place at the Dragon discovery in St George’s Channel Basin, off the coast of Ireland.

The new estimate is derived from an inversion study carried out by IKON Geoscience, which remodeled historical well and seismic data.

An inversion study increases the resolution and reliability of existing data, which in turn improves estimation of rock properties, including porosity and net pay.

What it has effectively done in Providence’s case is treble the size of the estimated resource. 

It also reveals that 75 per cent of this enlarged resource lies on the Irish side of the off-shore border between the Republic and the UK. Previously the figure was estimated at 25 per cent.

Providence owns the Irish licence, SEL 1/07, and has applied for the UK block 103/1-1, where in 1994 a discovery well was drilled by Marathon Oil.

Providence technical director John O'Sullivan said: "The recently completed IKON study has significantly increased the resource potential of the tested gas bearing sands in the Dragon discovery. 

“The results are extremely positive, particularly from an Irish perspective, as they suggest a more extensive gas bearing reservoir system extending much further into Irish waters. 

“Given these very encouraging results, additional reprocessing of the Dragon 3D data and well planning have now commenced as a prelude to finalising the well location for appraisal drilling in 2012."

Dragon is one of a number of Providence’s prospects with relatively low geological risk, where advances in technology and buoyant oil and gas prices mean they are now economic.

Another is the Barryroe field in the Celtic Sea, where Providence is operator. 

“This is the first major milestone and potentially lowest hanging fruit in an active upcoming drilling campaign and spudding is expected shortly,” said Andrew McGeary, analyst at Northland Capital.

Providence is 50 per cent owner and operator of Barryroe, which was discovered in the 1970s and has previously flowed oil at the rate of 1,400-1,600 barrels a day.

A flow rate above 1,800 barrels a day makes Barryroe economic, according to an independent report compiled by RPS, which also estimates there is 60 million barrels of crude recoverable from 373 million barrels in place.

It kicks off an exploration and development programme worth US$500 million, with the London and Dublin-listed oil explorer footing US$120 million of that bill.

The economics of the field show that this one development prospect could be transformational. 

The P50 reserves figure gives a net present value for Barryroe of just over US$800 million based on a 10 per cent discount rate.

Following shortly after Barryroe is a re-drill of the nearby Hook Head field, which was first discovered in 1971. Here Providence owns 72.5 per cent and like Barryroe it is the operator of the field.

Samples suggest it is a mid-gravity, high pour, waxy crude, with 20 million barrels recoverable.  

A well was drilled in 2007, which “petered out” due to water ingress, with boss Tony O’Reilly blaming the engineering rather than the geology for the flop.

From these two development plays, the group will then move on to two exploration plays – Dalkey Island off the coast of Dublin and Rathlin Island, off the north-eastern corner of Northern Ireland.

The latter is an onshore-offshore play. It is onshore in that all the drilling, due to get underway in the fourth quarter of this year or early next, can take place on dry land. However, the group is also planning to chase the off-shore licences around the Rathlin prospect.

Moving into next year and the emphasis changes from east coast to the west, and Providence is heading very much further offshore in the pursuit of oil and gas.

Spanish Point is a gas condensate discovery located 125 miles offshore.  It was found in 1981 when Ireland simply did not need gas in the quantities thought to be contained at Spanish Point and there was no infrastructure by which to exploit it – that has all now changed.

Providence estimates there are 200 million barrels of oil equivalent. It owns a 56 per cent stake, which will fall to 32 per cent when partner Chrysaor formally agrees to drill two wells there.

Those who follow Providence closely will know that Dunquin is the big daddy of all its exploration projects, and it has an all-star roster. 

ExxonMobil is a 40 per cent shareholder and the operator, while ENI farmed in for a 40 per cent stake in 2009. SOSINA holds 4 per cent, leaving Providence with 16 per cent.

Work is expected to get underway on Dunquin in mid-2012 and will be followed in the autumn of next year by an appraisal well on the Dragon Field, which is equidistant between Wales and Ireland.

It also has a producing asset in Singleton in West Sussex. Oil revenues from this source will be used to help fund the company’s exploration activities.

“In all, with valuation at least partially underwritten by the Singleton productions assets and additional major appraisal and exploration opportunities Providence is an interesting story entering a key phase in its development,” concludes Northland’s McGeary.

Posted Date: 
8 October 2011