Providence Resources P.l.c. - 2018 Annual Results

Company Providence Resources PLC 
Tags Capital Spending, Guidance, Strategy - Corporate, Financial & Operating Data
Date June 28, 2019

Providence Resources P.l.c. (PVR LN, PRP ID), the Irish based Energy company, today announces its Annual Results for the year ended December 31, 2018.

Tony O’Reilly, Chief Executive Officer commented:

“Despite encountering increased regulatory and political headwinds,  we continued to progress our portfolio and in doing so, have further advanced assets that will help Ireland to meet its future energy needs.

The key commercial milestone in 2018 was the negotiation and signing of the Barryroe Farm-Out Agreement with APEC.  Barryroe is singularly the most important asset in our portfolio and, with a planned investment programme of c. $200 million for a 5-well drilling programme, it is potentially transformational for Providence.  This transaction was particularly complex and considerable time was committed during the year in negotiating all aspects of the many contracts that underpin the farm-out.  The Company has had to deal with a delay in the receipt of the initial site-survey and well-consenting loan from APEC, as well as ongoing regulatory consenting delays, though we remain confident that both the loan advance and consents will be received shortly which will allow us to progress operations.  As previously announced, the Company has agreed an extension for the receipt of the initial US$9 million loan advance to July 5, 2019.  As of today’s date, this payment has yet to be received.

Our other major focus during the year has been responding to the Climate Emergency Measures Bill which gathered significant momentum towards the end of 2018.  Recently, reason has begun to prevail and whilst the Bill is currently in legislative limbo, we cannot state strongly enough how it is damaging sentiment and, as a result, investment interest in offshore Ireland.  To be clear, this Bill, if enacted as currently drafted, will do nothing to reduce Ireland’s CO2 footprint and it will, in fact, substantially increase the risk of an energy supply shock as Ireland will become even more reliant on imported oil and gas from places like Russia and the Middle East.  

Sustainable Energy Authority of Ireland (SEAI) have stated that Ireland will require oil and gas for decades to come regardless of any measures that are implemented to try to reduce our needs in the meantime.  The key to delivering meaningful changes to Ireland’s CO2 emissions are wholesale changes in consumer lifestyles, behavior and consumption which the oil and gas industry encourages as part of a transition to a lower carbon Ireland.  However, we can see no logical reason why the Government or any other political party would not avail of the secure and cost-effective opportunity to source the required oil and gas needs locally, as opposed to increasing our already significant reliance on imported energy with the resultant increase in Ireland’s global CO2 footprint.  Should this Bill be enacted, we would rightly seek financial redress from the Irish State in respect of our very significant historical investment to date on behalf of our shareholders.

Providence has been at the forefront of promoting exploration offshore Ireland for over two decades.  During that period, the Company has been successful in concluding a number of significant farm-out transactions with some of the world’s largest energy companies.  Our success in farming out these projects has led to Providence’s role changing from Operator to non-operating partner.  This, combined with other factors such as the lack of new licensing opportunities offshore Ireland, together with a limitation on any international expansion, has led the Company to commence a complete re-alignment of its operating model, which, when fully implemented, could result in a significant reduction in its staffing requirements going forward.  We are commencing a period of consultation with all members of staff in relation to this re-alignment process which we believe is necessary to ensure Providence’s continued progress with its portfolio and to enable the underlying value of its assets to be realised.

We note with enthusiasm that CNOOC International and ExxonMobil are currently drilling the Iolar well, which is adjacent to our Diablo licence.  This is a very important well for the Porcupine Basin and we wish CNOOC and  ExxonMobil all the best for a safe and successful drilling operation.

Despite the significant political and commercial headwinds that we have faced, the materiality of both our portfolio and investment in offshore Ireland continues to grow and the Board remain focused on realizing value for all of our shareholders.”

2018 OPERATIONAL HIGHLIGHTS

APPRAISAL

  • Barryroe, North Celtic Sea (SEL 1/11)
    • In March 2018, EXOLA signed a Farm-out Agreement (“FOA”) with APEC Energy Enterprises Limited (“APEC”)
    • Following the receipt of Ministerial approval for the assignment of a 50% working interest in SEL 1/11 to APEC, EXOLA, Lansdowne & APEC signed an updated FOA in September 2018
    • The updated FOA provides for a full cost carried firm drilling programme comprising of four vertical wells & one horizontal side-track, plus the optional drilling of two further horizontal wells, and loan advances to EXOLA for certain project and operational costs of US$ 19.5 million
    • In October 2018, the Company received consent to carry out a site survey
    • In November 2018, arising a from third party legal challenge against the Irish Government regarding the grant of the site survey consent, the Company elected not to act on the granted survey, thereby postponing the site survey
    • During Q4 2018, the Company progressed key operational arrangements and started to prepare a revised site survey application

EXPLORATION

  •       Diablo, Southern Porcupine (FEL 2/14)
    •                   Closing of the farm-out for the assignment of equity (35%) and transfer of operatorship to TOTAL
    •                   CNOOC International to drill the analogous Iolar pre-Cretaceous prospect in the adjacent licence in 2019
  •        Dunquin South, Southern Porcupine (FEL 3/04)
    •                   Dunquin North post-well results released at the AAPG ERC Conference in Lisbon May 2018
    •                   Interpretation of 3D seismic data confirms the presence of the large Dunquin South prospect, a large potential breach point imaged over Dunquin North prospect and where internal seismic reflectivity and velocities indicate Dunquin Ridge to be of sedimentary origin
    •                   2019 Programme agreed, including planned acquisition of well-site survey in summer 2019
  •        Newgrange, Goban Spur (FEL 6/14)
    •                    High resolution 2D seismic acquisition & well exploration site survey completed
    •                    Large number of seabed pockmarks imaged on site survey data
    •                    Seabed sample geochemistry demonstrates both biogenic and thermogenic hydrocarbon sourcing signatures indicating a potential link to hydrocarbon migration
  •        Avalon, Southern Porcupine (FEL 2/19)
    •                    Application made to convert Licensing Option (“LO”) 16/27 to a Frontier Exploration Licence (“FEL”)

OTHER LICENCE ACTIVITY

  • Spanish Point, Northern Porcupine (FEL 2/04)
    • Under discussion with the regulatory authorities
  • Spanish Point North, Northern Porcupine (FEL 4/08)
    • Licence relinquished
  • Dragon, St. George’s Channel (SEL 2/07)
    • Under discussion with the regulatory authorities
  • Hook Head, North Celtic Sea (SEL 1/07)
    • Subject of Lease Undertaking application
  • Helvick/Dunmore, Celtic Sea (Lease Undertaking)
    • Subject to MFDevCO work programme
  • OPL1 Option, North Celtic Sea
    • The option was not exercised
  • Kish Bank, Kish Bank Basin (SEL 2/11)
    • Completion of 1st phase of licence through August 2018

2018 FINANCIAL HIGHLIGHTS

  • Operating Loss for the period of € 4.425 million versus € 21.402 million in 2017
  • Loss of € 4.779 million versus € 20.419 million in 2017
  • Loss per share of 0.80 cents versus 3.42 cents in 2017
  • At December 31, 2018 total cash & cash equivalents were € 7.617 million versus € 19.603 million (at December 31, 2017)
  • The Company had no debt at December 31, 2018
  • The total issued & voting share capital comprises 597,658,958 ordinary shares of € 0.10 each

POST-YEAR-END EVENTS

  • Barryroe, North Celtic Sea (SEL 1/11)
    • In February 2019, the “COSLInnovator” semi-submersible drilling unit was nominated by COSL
    • In February 2019, a new site survey application was submitted. This application is still pending
    • In April 2019, an application was made to convert SEL  1/11 to a Lease Undertaking
    • Owing to these consenting delays, and the increased duration of the planned programme, the loan advances to EXOLA for certain project and operational costs were increased from US$ 19.5 million to US$ 24 million
    • In June 2019, the Company agreed an extension for the receipt of the initial US$ 9 million loan advance to July 5, 2019 after which time, the Company will issue a further update
    • Subject to receipt of regulatory consents and applicable financing, the well-site survey operations are expected to commence in Q3 2019
  • Avalon, Southern Porcupine (FEL 2/19)
    • In February 2019, Ministerial consent was given for the conversion of LO 16/27 into FEL 2/19
    • In March 2019, the JV Partners licensed c. 1,500 km2 of multi-client 3D (“MC3D”) seismic data over FEL 2/19 which forms part of the larger Crean 3D seismic survey which was acquired by TGS in 2017  
  • Dunquin South, Southern Porcupine (FEL 3/04)
    • In June 2019, the Dunquin JV partners agreed to defer the planned summer 2019 well-site survey programme

BUSINESS RE-ENGINEERING
Since the period end, the Board has carried out a strategic review of the Company’s operations to ensure that its business model continues to be ‘fit for purpose’.  As a result, the Board concluded that there was an immediate requirement to re-engineer Providence’s business model to reflect the changes that are evident in its operating environment.

This re-engineering reflects a number of material factors, including:

  • The Company’s success in farming out the majority of its portfolio, which has led to:
    • the transfer of Operatorship in most of the Company’s key assets; and
    • a substantially reduced technical role for the Company;
  • The fact that the Company is not a revenue generating Company
    • the Company’s past two years of working capital have been financed solely through the completion of farm-out deals;
  • The threats posed by the Climate Emergency Measures Bill and other Climate Action initiatives that are impacting both sentiment and investment in exploration activities offshore Ireland and the Company’s consequent inability to secure additional acreage offshore Ireland;
  • The inability to pursue international expansion.

It is expected that this corporate re-engineering will significantly impact the requirement for both technical and support staff based at our Dublin headquarters, and the Company will now enter into a consultation process with staff affected by this decision.  The Company will also vacate its current Dublin office location in early Q4 2019. The Company plans to implement a project-based, outsourced business model which is more aligned with the current reduced and sporadic nature of its operated activities, that have experienced significant slippage due to the recent and ongoing consenting delays. 

As this re-engineering programme is expected to take several months to implement, the Company will provide further details when it issues its H1 2019 Results in September 2019 or earlier as appropriate.  As part of this re-engineering programme, the Board will also review its size and composition to ensure that they are consistent with the Company’s needs going forward.

RESTRUCTURING OF SUBSIDIARIES
Finally, as part of the review of its business, the Board is streamlining its corporate structure to three wholly owned subsidiaries:

  • EXOLA Designated Activity Company (“DAC”) is the subsidiary which holds a 40% interest in SEL 1/11 (Barryroe);
  • Providence Porcupine DAC is a new subsidiary that will hold1 our exploration interests in the Porcupine Basin, namely 28% of FEL 2/14 (Diablo), 40% of FEL 2/19 (Avalon), 80% of FEL 6/14 (Newgrange) and 26.846% of FEL 3/04 (Dunquin South);
  • Other Irish licence interests will continue to be held directly by the parent company, Providence Resources P.l.c.
  • Providence Renewables DAC is a new subsidiary that will be used by the Company for any future potential activities in the renewable energy arena, which may include offshore geothermal and Carbon Capture and Storage activities.

CLIMATE EMERGENCY MEASURES BILL
The Company continues to closely monitor the proposals put forward in the Climate Emergency Measures Bill 2018.  Given Ireland’s relative geographical isolation and the fact that Ireland currently imports 100% of its oil and c. 40% of its gas needs, energy policy in Ireland is a very important issue, with a number of critical factors to be considered including security of energy supply, the impact of Brexit, the intermittent nature of installed renewable energy capacity, planning limitations, coupled with the fact that the Irish economy is heavily reliant on imported fossil fuels. 

As such a key provider of energy, the Oil & Gas industry has a very important role to play in shaping our National Energy Policy especially as we transition to a lower carbon world.  We will continue to work with the government, industry and other stakeholders to ensure that this important national issue is treated with the consideration and priority that it deserves as Ireland transitions to a low-carbon future.  Providence and its partners should and will play an important role in this vital and necessary transition.

OUTLOOK 
2018 was a very busy year for the Company with the Barryroe farm-out being the main commercial highlight.  The Company will continue to advance Barryroe through the well preparation and consenting process in advance of the planned commencement of the multi-well drilling programme.  The key immediate focus remains on receiving the US$ 9 million loan advance from APEC and the receipt of required consents to be able to implement the well-site survey at Barryroe this summer, as this drives all subsequent permitting requirements for the future planned drilling programme.

Despite the significant political and commercial headwinds that we are facing, the magnitude of our portfolio of assets offshore Ireland continues to grow and the Board remain focused on developing and monetising value for all of our shareholders.

INVESTOR ENQUIRIES 
 
Providence Resources P.l.c.  Tel: +353 1 219 4074 
Tony O’Reilly, Chief Executive Officer   
   
Cenkos Securities plc  Tel: +44 131 220 9771  
Neil McDonald/Derrick Lee   
   
J&E Davy  Tel: +353 1 679 6363  
Anthony Farrell    
   
Mirabaud Securities Limited  Tel: + 44 20 3167 7221 
Peter Krens   
   
MEDIA ENQUIRIES 
 
Powerscourt  Tel: +44 207 250 1446  
Peter Ogden   
   
Murray Consultants  Tel: +353 1 498 0300  
Pauline McAlester   

ANNOUNCEMENT & FORWARD-LOOKING STATEMENTS

This announcement contains certain forward-looking statements. Actual results may differ materially from those projected or implied in such forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results. No representation is made that any of those statements or forecasts will come to pass or that any forecast results will be achieved. You are cautioned not to place any reliance on such statements or forecasts. Those forward-looking and other statements speak only as at the date of this announcement. Providence Resources P.l.c undertakes no obligation to update any forward-looking statements.

This announcement has been reviewed by Dr John O’Sullivan, Technical Director, Providence Resources P.l.c.  John is a geology graduate of University College, Cork and holds a Masters in Applied Geophysics from the National University of Ireland, Galway. He also holds a Masters in Technology Management from the Smurfit Graduate School of Business at University College Dublin and a doctorate in Geology from Trinity College Dublin.  John is a Chartered Geologist and a Fellow of the Geological Society of London.  He is also a member of the Petroleum Exploration Society of Great Britain, the Society of Petroleum Engineers and the Geophysical Association of Ireland. John has more than 25 years of experience in the oil and gas exploration and production industry having previously worked with both Mobil and Marathon Oil.  John is a qualified person as defined in the guidance note for Mining Oil & Gas Companies, March 2006 of the London Stock Exchange. Definitions in this press release are consistent with SPE guidelines. SPE/WPC/AAPG/SPEE Petroleum Resource Management System 2007 has been used in preparing this announcement.  

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