PVR – “At Newgrange, we are getting this prospect drill ready by accelerating plans for a site survey this summer, whilst also continuing to run a major farm-out campaign.”

10 May, 2018 – Providence Resources P.l.c. (PVR LN, PRP ID), the Irish based Oil & Gas Exploration Company, today announces Annual Results for the year ended December 31, 2017.
 
Commenting today, Tony O’Reilly, Chief Executive Officer said:
 
“2017 was an extremely busy year across the entire Providence portfolio.  During the year, we agreed 3 major exploration farm-out transactions which provided significant momentum to our portfolio development activities and also delivered incremental capital to enhance our financial resources.  In recent months, we have signed a substantial appraisal farm-out transaction with a Chinese led consortium which provides the financial and operational capacity for the appraisal and development of our flagship Barryroe Project in the Celtic Sea.
 
Our main operational activity of 2017 was the drilling of the 53/6-1 exploration well in FEL 2/14 in the Porcupine Basin.  This drilling programme, targeting the Druid & Drombeg exploration targets, was a major undertaking for Providence.  Not only was this well the deepest water depth well ever drilled by any company offshore North-West Europe, but it was also the first exploration well to be drilled under the new PEES (Petroleum Exploration and Extraction Safety) Act 2015, which required substantial additional permitting and consenting.
 
Unfortunately, as we announced last summer, both targets were water wet which was very disappointing – but as a by-product, valuable regional geology, reservoir development and pressure regime data were obtained.  As only the second wildcat exploration well ever drilled in the southern Porcupine Basin, the well data will be useful for any future planned drilling of the deeper Diablo structure contained within FEL 2/14 or other Providence assets elsewhere within the basin.  Importantly, from a financing perspective, the farm-out deals structured with TOTAL and Cairn substantially mitigated our cost exposure to this drilling programme.
 
In addition to drilling activity, we continued to advance our West of Ireland exploration portfolio.  Through a farm-out, we welcomed TOTAL in as a new 50% partner and Operator of Avalon, which we recently applied to convert to a Frontier Exploration Licence.  At Dunquin, the partners licenced newly acquired 3D seismic which clearly differentiates between the breached Dunquin North structure and the undrilled Dunquin South prospect and so further analysis is ongoing.  Finally, at Newgrange, we are getting this prospect drill ready by accelerating plans for a site survey this summer, whilst also continuing to run a major farm-out campaign.
 
Post year end, the signing of the Farm-Out Agreement with APEC of a 50% working interest in Barryroe was the key transaction for Providence.  The farm-out, which is subject to closing conditions and is expected to close in Q3, is proceeding to plan.  The farm-out provides for the drilling of 3 wells and associated side-tracks and testing in 2019.  Importantly, the structure of the farm-out transaction means that Providence has no upfront risk or capital exposure for the initial appraisal drilling, whilst also providing a roadmap to take this project, subject to the results of the drilling, to project sanction and on to production.
 
We continue to be by far the most active player offshore Ireland in terms of drilling activity, commercial deals and collaborations with world-class partners. Looking ahead, we have the portfolio, partners, people and financial resources in place to advance our portfolio through exploration & appraisal drilling for the benefit of all our shareholders.”
 
2017 OPERATIONAL HIGHLIGHTS
APPRAISAL
  • BARRYROE, North Celtic Sea Basin (SEL 1/11)
  • Farm-out discussions continued – Period of exclusivity granted
  • Extension to 1st phase of SEL 1/11 to July 2019 and overall license extension of 2 years to July 2021
  • New 3D seismic uplift provided significantly enhanced visualisation of Barryroe reservoir interval
  • HELVICK & DUNMORE, North Celtic Sea Basin (LU)
  • Awarded Lease Undertakings
  • Assigned 10% equity in Helvick to MFDevCo and 10% equity to Lansdowne
  • Assigned 10% equity in Dunmore to MFDevCo
EXPLORATION
  • DRUID/DROMBEG/DIABLO, Southern Porcupine Basin (FEL 2/14)
o   Consented and drilled the 53/6-1 exploration well
o   1st well to be consented under new Irish Petroleum (Exploration and Extraction) Safety Act 2015
o   Deepest water depth for any exploration well ever drilled offshore North-West Europe
o   No Lost Time Incidents (“LTI’s”)
o   Paleocene Druid Reservoir interval encountered within pre-drill depth prognosis, but was water bearing
o   Lower Cretaceous Drombeg Reservoir interval encountered within pre-drill depth prognosis, but was water bearing
o   53/6-1 exploration well plugged and abandoned in accordance with pre-drill plan
 
Cairn Farm-in to 30% of FEL 2/14
o   Capricorn Ireland Limited (“Capricorn”), a wholly owned subsidiary of Cairn Energy PLC (“Cairn”) paid 45% (US$18.9 million) of 53/6-1 well costs, subject to a gross well cap of US$42 million, and thereafter at 30% cost share
o   Capricorn made a cash payment of US$2.82 million on a pro-rata 80/20 basis to Providence and Sosina
o   Capricorn also agreed methodology for a contingency appraisal well carry on a 1.33 to 1 promote basis, subject to US$42 million gross well cap
 
TOTAL Option and Election to Farm-in to 35% of FEL 2/14
o   Option with TOTAL E&P Ireland B.V. (“TOTAL”), a wholly owned subsidiary of TOTAL S.A., giving TOTAL the right to take a 35% working interest, via agreed farm-in, exercisable post drilling of the 53/6-1 well
o   TOTAL paid US$27 million to Providence & Sosina (US$21.6 million & US$5.4 million, respectively)
o   TOTAL subsequently exercised Option to farm-in for 35% working interest and assumed Operatorship
  • DUNQUIN SOUTH, Southern Porcupine Basin (FEL 3/04)
  • ENI assumed Operatorship
  • Providence equity increased to 26.846% following acquisition of Atlantic’s 4.0% working interest
  • Licensed 1,800 km2 of 3D seismic data from CGG as part of their Porcupine Basin multi-client 3D acquisition programme (acquired in June 2017)
  • AVALON, Southern Porcupine Basin (LO 16/27)
Technical work
  • Generated calibrated Petroleum Systems Model (“PSM” c.48,000 km2), which supports the potential of a working petroleum system in LO 16/27
  • Model demonstrated that Avalon could potentially access a total hydrocarbon resource charge of c. 8.67 BBO and c. 21.43 TSCF (equivalent to c. 12 BBOE)
TOTAL Farm-In to 50% of LO 16/27
o   TOTAL E&P Ireland B.V. (“TOTAL”), a wholly owned subsidiary of TOTAL S.A., farmed-in for 50% interest and Operatorship
o   TOTAL paid pro-rata share of past gross costs of c. US$0.175 million, and in addition to its pro-rata share, pay 21.4% of the past and future costs during the 2-year term of LO 16/27, subject to a gross cost cap of US$1.33 million
o   In the event that the JV partners decide to drill an exploration well, TOTAL will pay 60% of the drilling costs, subject to a gross well cap of US$ 42 million
  • NEWGRANGE, Goban Spur Basin (FEL 6/14)
  • Prepared scope for 2018 site survey and future drilling
  • KISH, Kish Bank Basin (SEL 2/11)
  • Ministerial consent granted to extend the 1st phase of SEL2/11 to August 2018 and an overall extension of one year to the license term to August 2020
2017 FINANCIAL HIGHLIGHTS
  • Operating Loss for the period of €21.402 million versus €18.844 million in 2016
  • Loss of €20.419 million versus €20.546 million in 2016
  • Loss per share of 3.42 cents versus 5.80 cents in 2016
  • At December 31, 2017 total cash & cash equivalents of €19.603 million versus €31.403 million (at 31/12/16)
  • The Company had no debt at December 31, 2017 (2016: nil)
  • The total issued & voting share capital comprises 597,658,958 ordinary shares of €0.10 each
BOARD CHANGES
  • In June 2017, Angus McCoss joined the Board as a Non-Executive Director
POST YEAR END EVENTS
  • BARRYROE, North Celtic Sea Basin (SEL 1/11)
  • In March 2018, the Company, through its wholly owned subsidiary, EXOLA DAC (“EXOLA”) signed a Farm-Out Agreement (“FOA”) with APEC Energy Enterprise Limited (“APEC”) in relation to SEL 1/11. 
  • Under the terms of the FOA, in consideration for APEC being assigned a 50% working interest in SEL 1/11:
  • APEC will be directly responsible for paying 50% of all the cost obligations associated with the drilling of 3 vertical wells, plus associated side-tracks and well testing (hereinafter referred to as the “Drilling Programme”);
  • APEC will provide a drilling unit and related operational services for the Drilling Programme;
  • APEC will finance, by way of a non-recourse loan facility (the “Loan”), the remaining 50% of all costs of the Barryroe Partners in respect of the Drilling Programme;
  • The Loan, drawable against the budget for the Drilling Programme, will incur an annual interest rate of LIBOR +5% and will be repayable from production cashflow from SEL 1/11 with APEC being entitled to 80% of production cashflow from SEL 1/11 until the Loan is repaid in full;
  • Following repayment of the Loan, APEC will be entitled to 50% of production cashflow from SEL 1/11 with EXOLA and Lansdowne being entitled to 40% and 10% of production cashflow, respectively.
  • Upon completion of the Drilling Programme, APEC will be able to subscribe for warrants over 59.2 million shares in Providence at a strike price of £0.12 per share (the “Warrants”). The Warrants, representing circa 9.9% of the current issued share capital of Providence, are exercisable for a period of 6 months following the completion of the Drilling Programme.
  • EXOLA will act as Operator for the Drilling Programme with technical assistance being provided by the APEC Consortium; and,
  • After the completion of the Drilling Programme, APEC will have the right to become Operator for the development/production phase.
  • The Closing of the Farm-out is conditional on completion of all ancillary legal documentation required to implement the terms of the Farm-out Agreement, and is subject to the approval of the Minister of State at the Department of Communications, Climate Action and Environment and the approval of the Chinese government.  The Closing of the Farm-out, which is expected to occur in Q3 2018, is proceeding to plan.
  • NEWGRANGE, Goban Spur Basin (FEL 6/14)
  • Extension of the first phase of the Frontier Exploration Licence to March 2019
  • High resolution 2D seismic acquisition and well exploration site survey contract awarded to Gardline
  • Site survey to take place in Q3 2018
  • Farm-out process continues
  • AVALON, Southern Porcupine Basin (LO 16/27)
  • Application to convert from a Licensing Option to Frontier Exploration Licence
OUTLOOK
We remain very optimistic about the future prospects for Providence.  We are both determined and uniquely positioned to continue to lead the industry in identifying and realising Ireland’s significant offshore potential, whilst also scouting opportunities elsewhere that leverage our unique skillset and experience offshore Ireland.  We continue to be by far the most active player offshore Ireland in terms of drilling activity, commercial deals and collaborations with world-class partners.  Looking ahead, we have the portfolio, partners, people and financial resources in place to advance our portfolio through exploration & appraisal drilling for the benefit of all our shareholders.