Providence to buy share in Kinsale Head asset

PROVIDENCE Resources is set to enter the lucrative gas storage and trading market and double its daily oil production levels after winning an option to buy a significant share in part of the former Irish assets of international exploration company, Marathon Oil.

The option in question is for a 40% stake in the Kinsale Head asset – which includes the Kinsale Head, South-West Kinsale and Ballycotton gas fields – and a 40% interest in the gas-producing Seven Heads field. The company is to pay up to $40m (€29m) for both stakes which are owned by Labuan Energy – a subsidiary of Petronas International. Petronas owns 100% of the Kinsale Head asset and 86.5% of Seven Heads.

Petronas bought Marathon’s Irish assets earlier this year, for $180m. The likes of Providence, Island Oil & Gas and Bord Gáis were amongst the domestic companies showing interest in Marathon’s Irish assets, when they were put up for sale. Providence’s buying of the British-based Singleton well from Star Energy (which was subsequently acquired by Petronas) and the pair’s mutual intent to get involved in the area of gas storage in Ireland, actually opened the door to the Irish company being awarded the option.

The option is open to Providence’s subsidiary, Eirgas – which was specifically established to invest in gas production, storage and trading opportunities off the coast of Ireland and Britain. Eirgas technically has three months in which to accept terms and decide on whether or not it will take up the option. While the deal will go through, it could still take up to the full three-month window to complete.

Providence’s chief executive Tony O’Reilly Jnr said that the proposed deal would allow the company to avail of Petronas’ technical resources and double Providence’s daily production to more than 4,000 barrels of oil equivalent per day. He said that this would be the first time an Irish company gained a large equity stake in Irish gas production, with the opportunity for storage a main driver to doing the deal.

“We will also gain exposure to existing and new gas storage and trading opportunities, which we see as a high potential future growth area. The deal would also give Eirgas an opportunity to potentially monetise gas from some of Providence’s adjacent gas discoveries in the Celtic Sea, as well as from third party fields,” he added.

On a day of broadly good news for Irish exploration companies, Petroceltic – which is active in Italy and parts of northern Africa – said that completed drilling at its Algerian-based INE-2 well has found gas-bearing deposits.

Elsewhere, Tullow Oil said that it encountered 20 metres of “net oil pay” in two separate zones in its Kigogole-3 well in Uganda.