Providence shares plunge 40% on poor drilling result

Shares in  plunged by as much as 40% yesterday, wiping around €41m from its market value, after the Irish explorer reported disappointing initial results from its highly-anticipated return to drilling off the west coast of the country.

In an operational update on the Druid prospect in the Porcupine Basin off the south-west coast, Providence said the target contained water – or that the data indicates “a porous water-bearing reservoir”.

Last month saw drilling — at an approximate cost of $185,000 per day — begin at the licence area containing both the Druid and Drombeg prospects.

A 30% buy-in by Scottish explorer Cairn Energy meant that Providence was shielded from at least 45% of the drilling costs and also allowed for drilling to spread across both prospects, rather than solely Druid.

Indeed, drilling will now switch to the secondary Drombeg prospect, situated around 1,000 metres beneath Druid.

Results are anticipated by the end of August. Before drilling commenced, an estimated five billion barrels of oil were being targeted from both Druid and Drombeg.

Druid was also seen as being the largest of the two prospects with well over three billion barrels.

“While pre-drill estimates reported this target [Drombeg] to be more constrained in volume terms, it is located closer to what is believed to be the Jurassic source rock,” said Davy Stockbrokers analyst Job Langbroek, adding that while holding smaller estimates Drombeg remains “a substantial target”.

Investors were more shaken yesterday, however. Providence’s market value — which stood at €106m on Thursday — fell to just €65m after its share price plummeted, finishing the day down by just under 39%.

Last summer Providence was effectively saved when it raised €66m in a share sale, with the investor money partly allowing for this year’s drilling round.

French oil major Total recently bought a 50% stake in the Providence-controlled Avalon prospect off the west coast (a recent assessment of which returned an initial resources estimate of around 12 billion barrels of oil equivalent), but also signed an option for a 35% share of the licence which contains the Druid and Drombeg prospects.

Davy noted that should the drilling costs be broadly in line with the pre-drill estimates of $42m, then Providence’s share of costs will be covered by the Cairn buy-in and Total option payment.

“This, in turn, means we estimate that Providence will have in the order of $30m of capital available for 2018 operations,” said Mr Langbroek.