Providence hoping to secure drilling partner by end of year

Oil and gas exploration company Providence Resources has said it hopes to bring in a major partner to exploit its Barryroe oil field in the Celtic Sea by the end of the year in a move that will give a "substantial lift" to its share price.

Addressing shareholders yesterday, chief executive Tony O’Reilly said that, while stocks in the resources sector had suffered a dismal period, Barryroe would prove a “game-changer” and should lead to a market rerating.

However, even though they are in talks with potential partners, and hope to proceed with just one alongside existing junior partner Lansdowne, it would be at least three years before Barryroe began production.

Last year was a landmark for the company following its successful completion of its first well at the site some 50km off the south coast. The company did, however, record an operating loss of €5.4 million due to increased administration costs associated with its multi-basin drilling campaign.

“It’s all about Barryroe now. The market wants to see us farm out Barryroe and that’s what we’re going to do,” said Mr O’Reilly.

“I think there is a huge opportunity for a substantial rerating. The market is ready to give us a substantial uplift but they think they want that technical and financial geological validation of a partner coming into Barryroe to give them the comfort.

“The good thing is every broker has a value on Barryroe which is multiples of our current share price.”

Mr O’Reilly said the consensus average price target currently amounts to some £18 per share with some analysts putting it as high as £32 per share. The shares are currently trading at £5.35 on London AIM market.

Providence must now bring in a major drilling partner with the technical and financial clout to realise the potential of its premier site.

Although he would not be drawn on details, Mr O’Reilly said there was positive interest and that the company hoped to have an arrangement in place by the end of 2013.

“The tradable elements are [that] we have got 80 per cent of the equity and Lansdowne has 20; how much do we try and hold on to whilst also trying to get someone to pay development costs of the project?” he said after the meeting.

The retainable equity target lies in or around the 30 to 40 per cent, which he says is consistent with what analysts expect.

“How the market reacts to it though, I think it would be an uplift. But how much I can’t say at this stage because it would really depend on the state of the market at the time,” he said.

In response to an earlier question from the floor, Mr O’Reilly said there has been no formal expressions of interest in buying the company outright.