Providence Resources is facing mounting pressure to sell a stake in its key oil discovery and extend a crucial debt facility after it was ordered to pay offshore drilling company Transocean over $7 million (€6.2 million) in a ruling by London's Court of Appeal yesterday.
The Irish oil and gas explorer, led by Tony O'Reilly jnr, said it was in discussions with its main creditor, known to be Melody Capital, to ensure it could satisfy its financial obligation.
While Providence said in December that New York-based Melody agreed in principle to extend a €15.6 million facility, due next month, by two years if needed, this remained subject to final negotiations on terms.
"Providence has operating costs of €4 million every six months and is currently generating no revenue and, by our estimates, only has approximately €8 million of cash on the balance sheet,'' said Darren McKinley, an analyst with Merrion Capital.
“They are now faced with a significant liquidity issue as a result of [the] ruling.”
Providence, whose shares were suspended in Dublin and London yesterday, needs to agree “imminently” to sell a stake in its Barryroe oil field off the Cork coast, Mr McKinley said.
Swiss-based Transocean, which provided Providence with a drilling unit for Barryroe, had appealed against a previous ruling by the Commercial Court, which found it to be in breach of its contract with Providence.
Its appeal centred on whether Providence was entitled to set off certain spread costs against Transocean’s original $19 million claim.
Yesterday the UK court of appeal granted Transocean’s appeal while upholding all other aspects of the original ruling.
In a statement following the judgment, Providence said it estimated the financial implications of the ruling would result in the payment of $7 million, excluding interest and costs, to Transocean.
It us understood that 20 per cent of the amount would be borne by Lansdowne Oil & Gas, a minority shareholder in the Barryroe project.
Providence said legal teams were in the process of agreeing the final amount payable to Transocean.
It also requested its shares remain suspended pending further clarification.
The company said it was in discussions with its financial advisers and debt provider “with the objective of ensuring that it had appropriate financial resources to satisfy its obligations to Transocean”.
It also noted that no provision for the appeal had been recorded in its recent set of financial accounts, which covered the 2014 financial year.
“Providence will now make a provision for its net amount in its financial accounts for the year ending December 31st, 2015”, it added.
While an institutional shareholder in Providence, who decline to be named, said the market had been caught off-guard by the announcement, the company did highlight the potential liability in a note in its 2014 accounts.
“I think a lot of investors are extremely frustrated, but most of us missed the note,” said the investor, who is among Providence’s top 20 shareholders. While there’s no doubt that Providence potentially has a very valuable asset and licences, it is under pressure to do a deal.”