Stock markets respond positively to ‘better than expected’ drill results

Investors in London and Dublin stock markets have reacted very positively to drilling results issued yesterday by exploration company Providence Resources.

While directors are slow to project any monetary value on the well’s estimated 59 million barrels of recoverable oil, yesterday’s “better than expected” reports on oil quality, sand and the accessibility of the oil within its surrounding oil-prone sandstone system have all been very well received by the markets.

On the Irish Stock Exchange, the share price opened at €3.43 and closed 22.5% up at €4.20.

Providence Resources chief executive Tony O’Reilly Jnr said: “It is very encouraging that the results have come in a bit better than was expected. From a universal markets point of view, analysts are just saying that we have done what we said we would do.

“The flow tests in the next 10 days will tell us a lot more about commercialisation for this project. This has the potential to be Ireland’s first major oil project. We are delighted that the investment community has reacted positively, and that it sees this news as ticking all the right boxes.

“We have been in exploration for 30 years, and we know a lot of things have moved towards us in terms of new technology, infrastructure and the oil price. Every analyst has picked up on that. All we are doing now is closing the perception gap between any remaining scepticism and real progress for this project.”

Providence owns 80% of the Barryroe well, 50km off the Cork coast, with the remaining 20% held by Lansdowne Oil & Gas. At present, Providence has a market capitalisation of over €200m.

Barryroe is one of six Irish exploration projects which Providence has at an advanced stage, into which it plans to invest €590m. Expert analysis estimates a well cost of $150m-$200m.

Davy Stockbrokers stated: “Better than expected thickness, good porosity and new technology all bode well for a successful flow rate. The next step is the flow test but so far so good. Based on the current 59 million barrel resource estimate, we value Providence’s share in Barryroe at 182p per share (459p unrisked).”

A number of London investment advisers have focused on Providence’s independently-calculated P50 resource — ie assessing the eventual value of the well allowing for a 50% certainty of being produced — to look at a projection of Providence’s future value in terms of 373 million barrels of oil coming from Barryroe.

London-based stockbroker Numis projects that this 50% revision of figures would still give Providence a valuation of 449 pence per share (€5.29) from 299p on the LSE, and lift the company’s net asset value to 1,069p a share from 920 pence.