Oil explorer Providence Resources, whose cash levels have slumped 80 per cent to $1.45 million (€1.3 million) so far this year, may need to sell shares or raise debt to progress its key Barryroe oil project off the Cork coast if the Chinese backer of venture fails to deliver initial funds, according to the company's UK broker.
James McCormack, an analyst with Providence's UK broker Cenkos Securities, said in a note to clients on Tuesday that Providence is likely to seek to proceed with a site survey of Barryroe so that the project is "drill ready", even if finance from Chinese firm APEC, which took a 50 per cent stake in the project last year, is not forthcoming.
Providence’s shares have been rattled over the past two months as APEC missed a series of deadlines to transfer an initial $10 million to cover preparatory work on Barryroe.
The company has received documents provided to APEC’s funders by bankin giant HSBC showing that the money has debited from their account for payment to Providence but the transaction was not fully processed.
A fresh deadline has been set for next Monday to receive the funds.
Providence agreed in March last year to give APEC a 50 per cent stake in Barryroe, which is estimated to have 311 million barrels of recoverable oil, in exchange for the Beijing-based firm covering half of the cost of an associated $200 million five-well drilling programme.
The deal also covers APEC lending Providence and Lansdowne Oil & Gas, which has a 10 per cent stake in the field, money to cover their costs.
“Without the APEC funding, we believe Providence (and Lansdowne) will still proceed with the Barryroe site survey so that Barryroe is ‘drill ready’,” Mr McCormack said. “To finance this, the company will need to raise funds either via debt or equity”.
Providence has raised $200 million (€178 million) in share sales in the past six years, including $70 million in an emergency equity raise in 2016, some of which was used to cover bill following a dispute with offshore drilling company Transocean. Its market value is currently less than €47 million.
“In lieu of the continued delays from the $10 million loan advance from APEC and the well-site consent [from the Irish Government], we have increased our risking of the Barryroe project,” Mr McCormack said.
The company submitted an application to carry out well-site survey operations in February, but a permit is still pending.
Mr McCormack said he sees the timeline for the survey to slip from the third quarter into the final three months of 2019, with drilling itself likely to drift into 2020.
Providence announced a major cost-cutting plan on Monday to lower its annual cost base by 65 per cent to $1.9 million.