We have not posted on Providence Resources for some months as we have been waiting on the Barryroe drill program to commence in 2019. The announcement of the delay to drilling at this field now into Q3 2019 (from Q1) is disappointing but shareholders should not take their eye of the prize that after many, many years now looks finally to be in their grasp.
The farm in deal that was concluded with the Chinese consortia APEC Energy we believe is a cracking one. The profile of the deal is essentially of a one way ticket for PVR shareholders. That being that there is no upfront cash equity contribution by Providence with the share of the drill costs only payable out of future production – this in itself evidencing the ultimate intent of the partners in this project to put the field into full commercial production. Given the rewind in the stock price in recent months on the declining oil price and also the court challenge by An Taisce over the plans for the seismic site survey we view the current stock price as an excellent re-entry point in anticipation of newsflow on both Barryroe and other potential farm in deals within Providence’s portfolio.
This piece HERE by us previously provides a graphic illustration of the upside on offer from Barryroe should the drill program prove successful. The salient para is this – Figures of upto circa $100m have been bandied around with regards to the 3 drill costs and PVR will be liable, in the event that the field goes into production for $40m of this plus interest at LIBOR + 5%. Applying a very conservative risk weighting of 40% at this stage to the conversion of the 2C reserves to 2P and taking the lowest figure (on an industry comp basis) of $4 boe results in what we see as near term, high probability value of thus $332.4m. Discounting this again at a rate of say 12% over 2 years (outside period for conversion of status from 2C to 2P) produces a figure of $265m. At the current FX rate and with just under 600m shares the see through stock price for Barryroe on this very cautious basis alone is 31.4p. This is near 3 times the current stock price.
Reading also into the RNS of last week per HERE gave investors hope for news on additional licence area farm-ins, in particular at Newgrange and Dunquin South. These are both high value targets. This was the key para from that RNS to us ref Barryroe – “The Barryroe Partners are in the final stages of concluding an Integrated Project Management Contract with COSL, who are to be contracted to provide all services and equipment required to conduct the Drilling Programme, including the provision of the nominated semi-submersible drilling unit. Further announcements will be made in due course.” In an nutshell, the drill program is on and the final proving up of Barryroe as a commercial field for offshore Ireland is now on the near term horizon.
The market is of course forever an “anticipatory machine” and we suspect, as the drills loom moving through 2019, that investors will begin to position for this event. The oil price decline of recent months has served up a new register entry opportunity that we did not believe would occur again. Given that Pageant Holdings have hoovered up most of the lose stock building a position of just over 12% of the company and now the number one shareholder, we believe the free float to be very tight. Buy.
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