Sunday 22 October 2017

Back to the future with Providence

FOR those of us of a certain age, last Wednesday's statement from exploration company Providence Resources will have brought back memories.

Its announcement that the Barryroe field off the coast of Cork contained up to 1.6 billion barrels of oil recalled the Irish exploration mania of the late Seventies and early Eighties, which saw some punters make it big, and many more lose their shirts.

There was something fitting about the fact that it was Providence which finally seems to have made an Irish commercial oil discovery. Providence is the corporate descendant of Atlantic Resources, the exploration company founded by Sir Anthony O'Reilly in 1981 to drill for oil in Irish offshore waters.

Now, after more than 30 years of disappointment, Providence finally seems to have come up trumps. But as the share price shows, any bonanza is still a long way off. Even after this week's good news the whole of Providence, which owns 80 per cent of Barryroe, is still worth only €534m.

On the basis of average North Sea recovery rates of 38 per cent, this means that between 380 million and 608 million of the 1-1.6 billion barrels of oil in the field could eventually be brought ashore, of which between 304 million and 486 million barrels would be attributable to Providence.

In other words, the market is ascribing a value of somewhere €1.10 and €1.75 per barrel to Providence's share of Barryroe. This compares to this week's crude oil price of $105 (€86) a barrel in London. Quite clearly, investors believe that Providence will only be able to commercialise Barryroe with the assistance of the one of the "majors" and that the price of such assistance will be a very significant dilution of its interest in the field.

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