Providence starts search for new Barryroe funding partner

Providence Resources has formally begun searching for new partners to help develop its flagship Barryroe oil and gas field after failing to receive promised funding from its existing Chinese partners.

APEC Energy - the Chinese consortium which, last year, signed up for a 50% stake in Barryroe - had up until close of business on Monday to deliver a long-since promised $9m (€8m) initial loan payment to Providence.

That money was targeted at funding ongoing work leading to a planned multi-well drilling campaign at the Barryroe site, off the Cork coast, sometime next year.

However, that deadline - one in a long line stretching back to early summer - was missed and Providence has stuck to its word by not extending it any further. It has also removed APEC's exclusive partner rights in relation to Barryroe.

This means that Providence is now free to talk with other potential partners. The company's chief executive Tony O'Reilly Jr has already claimed that other international oil companies would be interested in a Barryroe deal.

The removal of APEC's exclusive partner rights will revert 80% ownership of Barryroe to Providence and 20% to its junior partner, fellow Irish explorer Lansdowne Oil and Gas.

With the failure to pay being attributed to a money processing issue, it remains to be seen if the loss of exclusivity will spur more urgency on APEC's part.

Earlier this week, shareholders approved a $3.76m (€3.4m) share sale, which gives Providence enough money to keep its head above water until February. That emergency funding move was triggered by APEC's failure to pay its promised funds.

While Providence said it regretted having to tap shareholders for more money, it denied that sourcing future funds may prove more difficult.

Fortunately, [the] recent cash injection has met immediate funding requirements but Barryroe still needs to be appraised - the one constant in the evolution of Providence over the last few years.

"How that is to be achieved is the immediate concern of management and the board," said Davy exploration analyst Job Langbroek.

However, he added: "While Barryroe is the most advanced and appraised oil project offshore Ireland, it still needs to be appraised by additional drilling before major capital commitment to its development will be made.

"Realistically, it can only be achieved through a replacement farm-out deal to industry and/or in combination Providence and Lansdowne undertaking a paying share of any drilling programme. The disappointment is that the APEC farm-in was a good deal to appraise a good target," Mr Langbroek said.

Providence has carried out two initial site surveys at Barryroe in recent weeks.

This, according to resources analyst James McCormack, at London-based Cenkos Securities, gives Providence "a very marketable, drill-ready resource for which it can look to attract new partners."

"Whilst we do not envisage any subsequent farm-out would present Providence with such a unique commercial arrangement - the APEC farm-out is for a five-well carry with no upfront funding - we do believe that the substantial resource at Barryroe, which is amongst the three largest undeveloped fields in western Europe, will attract interest from the North Sea players," said Mr McCormack

Providence's eggs are increasingly being placed in the one basket, marked Barryroe, with its Diablo prospect off the west coast now being relinquished by French oil major Total, its partner on the project. That follows Providence recently relinquishing its Newgrange prospect, also off the west coast, after failing to land a development partner.

It also emerged, this week, that certain institutional shareholders blocked the company's plans to expand overseas and move on an already identified international deal in favour of focusing wholly on Ireland.