Business Irish

Monday 21 October 2019

Providence no longer extending deadline to receive Chinese funds

Confident: CEO Tony O’Reilly Jnr
Confident: CEO Tony O’Reilly Jnr
Ellie Donnelly

Ellie Donnelly

Irish oil and gas exploration group Providence Resources said on Tuesday that it is to end its exclusive relationship with a Chinese backer after the deadline to receive a $9m (€8.2m) loan from the Apec group passed without the funds materialising.

As recently as Monday, the company had said it expected the funding to arrive, with CEO Tony O'Reilly Jnr telling shareholders that he "remained confident" the money would be transferred.

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The company's shares dropped more than 25pc from Monday's close to €0.448 by the end of business on Tuesday.

Under the terms of a farm-out agreement with Apec agreed in 2018, the Chinese group was to take a 50pc interest in Barryroe, Providence's flagship prospect off the Cork coast. Barryroe has 311 million barrels of recoverable oil, it has been predicted.

In exchange, Apec would cover half of the estimated $200m costs associated with the drilling programme.

The $9m loan advance was initially expected to arrive in mid-June. Since then, Providence has repeatedly extended what it calls the 'backstop date' for Apec's money to appear.

The latest extension was until close of business on Monday.

Providence has now advised Apec that it will start the licence reversion process of Apec's 50pc working interest in Barryroe to EXOLA (operator of the prospect) and Lansdowne Oil and Gas on a 40pc and 10pc basis, respectively. In a statement yesterday, Providence said Apec has been advised that it no longer retains exclusivity in respect of Barryroe, and that Providence is now free to open up commercial discussions with third parties over the asset.

The company added that further announcements "will be made in due course".

Job Langbroek, analyst at Davy Stockbrokers, said that while the latest development was "not unexpected, this is a very disappointing outcome to the process".

On Monday, shareholders in Providence approved raising $3.76m (€3.4m) through a share placing at the EGM.

The funds raised will be used to cover costs associated with the re-engineering of the firm's business model. In addition, $500,000 will fund the balance of costs related to the acquisition of the site survey at Barryroe. The remaining $2.5m will be spent on general working capital for the period up to the beginning of February 2020.

"Fortunately, a 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," Mr Langbroek said.

"How that is to be achieved is the immediate concern of management and the board," he added.

Providence will now move forward with the implementation of its redundancy programme announced in August, where technical and support staff will be made redundant as part of the re- engineering of the company's business model.

Elsewhere, Providence has also said it is relinquishing its FEL 2/14 licence, which contains the Diablo prospect, at the end of the year.

Meanwhile, the Dublin-listed company's UK broker Cenkos yesterday issued a report in which it predicted that the "underdeveloped" Barryroe prospect would "attract interest from North Sea players".

Irish Independent

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