Providence pulls out of acquisition

PROVIDENCE Resources has pulled out of its proposed acquisition of 40% of the Kinsale Head Area assets from Malaysian oil company, Petronas.

The failed deal would have doubled its daily oil production levels and established it in the area of gas storage.

The decision was taken after Providence’s management recently discovered they would have to pay significantly more for the assets than initially anticipated.

Although Providence’s share price reacted by falling by 20% to 3c, the about-turn was described by Providence’s chief executive, Tony O’Reilly Jnr, as being a prudent decision by the board.

The Irish oil and gas exploration company – via its gas storage subsidiary, Eirgas – won the option to buy the stake in the Kinsale asset (which includes three gas fields) last September. Providence paid a deposit of $3.8m – which it has now retrieved – on the understanding that the total transaction would cost it around $40m. Management refused to comment on exactly how much that figure had increased by, but said they would have had to pay tens of millions more.

“Due to a combination of updated financial data and increased funding requirements, it became clear that the transaction no longer represented the same opportunity for Providence shareholders. While the long-term economics of gas storage are compelling – and Kinsale represents a unique world-class asset – the short-term marked erosion in gas prices, combined with a different planned capital structure going forward, led us to withdraw,” Mr O’Reilly added.

He said that the core business of Providence remains oil and gas exploration and production and not gas storage where long-term opportunities would, however, still be examined.