Providence makes new gas discovery in the Gulf of Mexico

EXPLORATION COMPANY Providence Resources says it has made a new gas discovery in the Gulf of Mexico.

The AIM and IEX-listed company and its three partners made the new gas find in the Galveston Island Block A-155 in the US Gulf of Mexico.

The new field, which is located about 100 kilometres off the US coast and in which Providence holds a non-operated 10.8 per cent working interest, will undergo a fast-track development via nearby existing infrastructure, according to the company.

Initial evaluation suggests that the well results have exceeded the expected pre-drill upside prognosis, it said. The pre-drill estimate for the target was 13 billion standard cubic feet of recoverable gas. While potential production rates still need to be finalised, it could be worth as much as 200 barrels of oil equivalent per day to Providence.

Providence's cost share in the investment is just less than $1 million, with finance provided through the revolving credit facility of $250 million organised through Macquarie Bank toward the end of 2007.

Providence will probably spend a similar figure with regard to getting to production, but this is still to be fully confirmed.

The project is being operated by Peregrine Oil and Gas. Other partners of Providence on the project include Challenger Minerals, UI Energy and HRB Oil & Gas.

The Galveston Island block is close to existing producing fields and first production is possible at the end of the fourth quarter of this year or early in the first quarter of 2009, according to Davy analyst James McCullough.

"While this discovery will not have a material impact on our valuation for Providence, when production comes on-stream it will increase the company's daily production rate and its cashflow generation," he said.