Providence hopeful on Celtic Sea prospects

Providence Resources, the separated oil and gas arm of Arcon International, is in with a fighting chance of delivering on its Celtic Sea prospects, its first annual general meeting was told yesterday.

The company is to complete its analysis of a proposed development programme in the Celtic Sea by the end of November and must submit its planned strategy to the Department of the Environment by May 2000.

In 1998, Providence completed a 3-D seismic survey, its new technical director, Mr Philip Tracy, told shareholders. This study, supported by an independent reservoir engineering survey, indicated the presence of eight to 12 million barrels of potential recoverable reserves. "With improvements in the technology, this represents a fighting shot."

The prospects were good, too, said Mr Tracy, in the Ardmore gas field, where a "conjoint development" of oil and gas could not be ruled out. Gas presented some difficulties but with the decline in Kinsale it was clear that Ireland needed to get its reserves of natural gas from elsewhere. The prospects also looked favourable for Block 50/11 in which Providence has a 75 per cent interest in a one-year licensing option, 30 km east of Helvick.

Providence turned in losses of £1.9 million for the 18 months ended December 31st 1998, the agm was told.

The first annual report revealed that the company made a loss of 0.64p per ordinary share in the period, from the time of its incorporation in July 1997. Notwithstanding the losses, the company was strengthened by a £5 million rights issue in November 1998.

The main shareholder is Dr A.J.F. O'Reilly, with 43.75 per cent of the company's equity or 345.9 million shares. His son, Tony jnr, a director, has 3.7 million shares, the chairman, Dr Brian Hillery, 500,000 and other directors, about 680,000.

"The year 1998 was a difficult time for the oil industry, with the Brent marker price dropping from some $20 at the end of 1997 to less than $10 per barrel at the end of 1998," Dr Hillery told shareholders. This affected profitability in two ways: firstly, overall profits were down since net income was reduced by about $100,000 for every dollar drop in the oil price. Secondly, there was a once-off write-down in relation to UK oil producing assets - specifically, the Claymore field in the North Sea and the Singleton field, on-shore in West Sussex.

The significant drop in the oil price had had a dramatic impact on the oil industry at large, said Dr Hillery, and contributed to its polarisation into two groups: the "super-majors" with the financial and technical resources to deliver "in increasingly difficult geographical and political environments" and small companies such as Providence. These smaller companies could more easily take advantage of opportunities as they arose - as well as developing profitable projects that were too small to be of interest to the larger companies.

In line with this, he said, Providence had adopted a short-to-medium term strategy focusing on existing prospects within its portfolio, in particular the Celtic Sea.

As part of the strategy, they had recruited "a very small team" of experienced professionals with a wide range of contacts in the oil industry. The latest recruit was the technical director, Mr Tracy, an engineer. The company is currently without a chief executive, because of the resignation in May of Mr Andris Blankenburgs, who has moved to Australia for family reasons.

In an overview of the company's prospects, Mr Tracy put particular emphasis on developments in the Celtic Sea: some 62 tenders had been received from contractors in relation to the development of the three licences there.

The company also has exploration interests in Papua New Guinea, which looked favourable in the long term, said Mr Tracy, but "is not top of the list of present prospects". This could change, however, if the Australians give the green light to an alumina plant in Queensland that would justify a gas pipeline from Papua New Guinea.