O’Reilly jnr’s Chinese cash battle latest in string of Providence setbacks

Efforts to find a major partner with deep pockets to back the project have been tortuous

Battle-weary investors in Tony O’Reilly jnr’s Providence Resources face an agonising wait until Monday to see if a Chinese backer of its plan to deliver Ireland’s first commercial oil field is still on board.

Shares in the Dublin-listed company, volatile at the best of times, have been on a rollercoaster ride for the past six weeks as the market digested regular updates on the whereabouts of $9 million (€8 million) due from a Beijing-based company backing its Barryroe oil project.

Even if the money had turned up by a final deadline of close of business on Friday, the whole saga has further dented confidence in Providence’s ability to finally deliver.

It is just the latest in a string of setbacks and near misses for the company.


Emergency cash call

With his back against the wall in 2016 as Providence struggled to pay a legal bill and refinance a costly loan from a New York credit fund, O’Reilly defied the sceptics by raising $70 million in an emergency share sale.

Investors being courted were encouraged to look not only at Barryroe – its most advanced prospect 50km off the Cork coast, which was found in 2012 to have 311 million barrels of recoverable oil – but the promise of two mega prospects 220km into the Atlantic ocean.

A report circulated at the time, carried out by the world's largest oilfield services company Schlumberger, concluded that one of those fields, called Druid, held 3.2 billion barrels of black gold. A further 1,000 metres lower, Providence's Drombeg field was estimated to contain a further 1.9 billion barrels.

O’Reilly told reporters after a shareholder meeting three years ago that a number of “super major” oil groups were swarming around Druid and Drombeg and looking to buy into the action.

The exuberance, as so often has been the case with Providence, didn’t last long. The company’s shares would lose half their value the following year as drilling at Druid and Drombeg revealed little more than water in the reservoirs.

Hopes quickly reverted to Barryroe, a field first discovered by Esso, now part of Exxon Mobil, in 1973 but dismissed at the time as not being a commercial find.

Almost four decades later, Providence said in 2012 that its appraisal well sitting 100 meters below surface waters had far exceeded expectations and that improved technology and prevailing oil prices had made it viable.

It was seen as a big breakthrough at the time. After all, a total of about 160 exploration and appraisal wells that have been drilled off Ireland’s shores since 1970 have only delivered two operational gas fields: Kinsale and Corrib.

Deep pockets

However, O’Reilly’s efforts to find a major partner with deep pockets to back the project have been tortuous.

Following years of discussions with various development parties, Providence selected London-based Sequa Petroleum in 2015. A farm-out agreement fell through after Sequa failed to raise the necessary money to participate.

In March 2018, Providence announced that a Chinese company APEC had agreed to take a 50 per cent stake in Barryroe. The partner has strategic partnerships with China Oilfield Services and Beijing-based private equity firm JIC Capital.

In return, APEC agreed to fund half of the cost of a $200 million five-well drilling programme at the project and lend Providence and 10 per cent stakeholder Lansdowne Oil & Gas money to cover their costs – repayable from when the field started to pump oil.

A project update last September said that APEC was proceeding with an initial loan of $9 million to Providence to fund well-site surveys and other early costs. There was nothing to suggest that this end of the bargain had not been honoured until Providence shocked the market on June 5th by saying it had not yet received the funds.

Moreover, it revealed that it had extended the deadline for APEC to wire over the money – originally expected during fourth quarter of 2018 – a number of times as elements of the agreement were tweaked. Investors didn’t know this until six weeks ago.

While Providence hasn’t yet needed the money, due to delays in securing a permit to survey the area around Barryroe before drilling commences, the delays have been unsettling.

People before profit

There was speculation in certain quarters that APEC was holding off on making payments amid concerns over People Before Profit TD Brid Smith’s Climate Emergency Measures Bill, brought before the Dáil last year and which would have limited the issuing of exploration licences in Ireland.

The suspicion was further fuelled when Providence was informed last Friday that the $9 million (plus an additional €1 million to cover APEC costs) was on its way – the same day that it had emerged that the Government had killed off Smith’s Bill, claiming the draft laws would be too costly for the exchequer.

A further stock market update from Providence on Thursday morning said that the funds had still not been wired across and that APEC had been given a final deadline of the close of business on Friday had been set.

Investors hoping for an update on Friday evening were left disappointed. They face an anxious wait until Monday.

Shares in Providence closed on Friday at 10.7 cent, valuing the company at €63.9 million. While analysts estimate that the stock could be worth between 40 cent and 50 cent based on what they consider to be conservative estimates on the Barryroe project alone, would-be investors would want to have a strong constitution.