The pending farm-out deal for Providence Resources on its Barryroe field in the Celtic Sea, may materialise as a ‘phased’ agreement, initially covering appraisal work, rather than being a full development cost partnership, according to a UK-based analyst.
Last month, Providence said it had reached agreement in principle regarding a long-awaited farm-in deal at Barryroe, which would significantly add development investment and potentially halve the Irish firm’s stake in the project to around 40%.
However, the deal’s conclusion is reliant on the as-yet unnamed partner raising its own financing.
Furthermore, some UK analysts have expressed concern over a farm-in partner succeeding in raising relevant financing to fulfill its obligations, and have said such challenges could put back Barryroe’s full development/ first commercial oil flow for the best part of three years, from an initial estimate date of 2017 to around 2019 to 2020.
“It’s a very significant issue. Debt providers currently have their hands full managing their existing books and it’s very difficult, at this moment, to gain funding for new projects,” one said yesterday.
Analysts at London-based Edison Investment Research seemed in agreement, in an updated note on Barryroe, published earlier this week.
“Last month’s positive news on a tentative farm-out agreement was the most tangible sign of progress in the last 18-24 months. We believe a deal is more likely to take the form of a phased farm-out than a full cost carry.
“On the positive side, falling rig rates and service costs could improve project economics and make a farm-in more attractive,” it said.
Its analysts believe that Providence will initially attract a partner which will help fund appraisal work at Barryroe, before the Dublin company negotiates another deal at a later date with another development partner.
They also suggest the possibility of Providence raising extra funds for the project via alternative/non- traditional financing sources, such as from drilling service companies and contractors, by way of offering a royalty or share of cashflow in return for project funding.
Providence’s shareholders are due to vote tomorrow on the company’s plans to raise a further €30m in fresh funds via a share placing and a separate open offer. The funds will cover pending and outstanding drilling, exploration, legal and administrative costs.
Certain brokers have suggested the new share placing has arrested the progress Providence has made in recent years and that its management needs to clearly articulate its plans or risk calls from so-called activist shareholders for changes to be made.
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