Shares dive as Providence hits water in Irish oil well

Shares in Irish oil and gas exploration company Providence Resources slumped by more than a third as it delivered "disappointing" news on Monday that its latest exploration activity has hit water-bearing sands.

In an update on its frontier exploration licence 2/14, located in the southern Porcupine Basin, about 220km off the southwest coast of Ireland, the company said the site contains “a porous water-bearing reservoir interval” at the well location, although the possible presence of bitumen may indicate that it received an oil charge which was not retained at this location.

Shares responded immediately when markets opened, diving by nearly 35 per cent in Dublin and by slightly more in the London market.

However, the stock pared back those losses and were down 29 per cent by close of trading in London, where it holds its main listing, and by 16 per cent in Dublin.

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The well is currently being plugged and abandoned. The site is situated in the deepest water of any exploration well ever drilled offshore Ireland, and Providence said it was “an important operational milestone”, being its first harsh environment ultra-deep water well operation.

Disappointing

Tony O’Reilly, chief executive of Providence, said the results were “disappointing”.

“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”.

He added that frontier exploration “requires perseverance, and we look forward to seeing the outcome of exploration wells planned for acreage proximate to FEL 2/14, which will test plays similar to Diablo, and to those which have proved to be successful in the conjugate Flemish Pass Basin, offshore Canada”.

Noting the involvement of its partners in the project, Mr O’Reilly said Providence’s financial exposure to the well was “significantly reduced, thereby ensuring that we remain well funded for our forward drilling operations offshore Ireland, with Barryroe being planned as our next well in this programme”.

FEL 2/14 is operated by Providence Resources (56 per cent) on behalf of its partners Capricorn Ireland Limited, a wholly-owned subsidiary of Cairn Energy (30 per cent) and Sosina Exploration (14 per cent).

Reservoir of water

The announcement follows similar news last month from Providence that preliminary data on the Druid prospect had shown up not so much a dry hole but a reservoir full of water.

Davy Stockbrokers said on Monday morning that while the news was “disappointing” the crucial difference between this and other high-impact wells the group has drilled was that it remained well financed to drill the next well in its programme.

“Frontier drilling is high-risk, but the Porcupine continues to be an area with significant potential given its similarity to other systems in the Canadian Eastern offshore and other Atlantic margin plays,” the broker said in a note.