Irish oil and gas company Providence Resources and its partner Lansdowne Oil & Gas have agreed to farm-out a 50% working interest in SEL 1/11 license offshore Ireland, which contains the Barryroe field, to a Chinese consortium. The consortium will in turn fund 100% of drilling costs.
The SEL 1/11 is operated by Providence’s subsidiary EXOLA DAC with a 80% interest and the remaining 20% interest is held by Lansdowne. The area lies in c. 100 meter water depth in the North Celtic Sea Basin and is located c. 50 km off the south coast of Ireland.
The Chinese consortium is led by APEC Energy Enterprise, a privately-owned Chinese company which has a strategic partnership with China Oilfield Services Co., Ltd (COSL) and JIC Capital Management Limited (JIC) for the investment and development of offshore oil and gas opportunities worldwide utilizing Chinese drilling units, services and equipment.
Providence said on Wednesday that, under the terms of the farm-out agreement, in consideration for APEC being assigned a 50% working interest in SEL 1/11, APEC will be directly responsible for paying 50% of all the cost obligations associated with the drilling of three vertical wells, plus any associated side-tracks and well testing. In addition, APEC will provide a drilling unit and related operational services for the drilling program.
Furthermore, Providence said that APEC will finance, by way of a non-recourse loan facility, the remaining 50% of all costs of the Barryroe partners in respect of the drilling program. The loan, drawable against the budget for the drilling program, will incur an annual interest rate of LIBOR +5% and will be repayable from production cashflow from SEL 1/11 with APEC being entitled to 80% of production cashflow from SEL 1/11 until the Loan is repaid in full.
Following repayment of the loan, APEC will be entitled to 50% of production cashflow from SEL 1/11 with EXOLA and Lansdowne being entitled to 40% and 10% of production cashflow, respectively.
EXOLA will act as the operator for the drilling program with technical assistance being provided by the APEC Consortium; and, after the completion of the program, APEC will have the right to become the operator for the development/production phase.
Upon completion of the drilling program, APEC will be able to subscribe for warrants over 59.2 million shares in Providence at a strike price of £0.12 per share. The warrants, representing circa 9.9% of the current issued share capital of Providence, are exercisable for a period of 6 months following the completion of the drilling program.
Closing in 3Q18
According to Providence, the closing of the farm-out, which is expected to occur in 3Q 2018, is conditional on completion of all ancillary legal documentation required to implement the terms of the FOA, and is subject to the approval of the Minister of State at the Department of Communications, Climate Action and Environment and the approval of the Chinese government.
In addition, the details of and schedule for the drilling program are subject to further ongoing technical discussions between the Consortium, Exola and Lansdowne. Subject to closing, the revised equity in SEL 1/11 will be EXOLA (operator, 40%), APEC (50%) & Lansdowne (10%).
Commenting on the deal, Tony O’Reilly, Chief Executive of Providence, said: “This is a significant transaction for Providence and Lansdowne which will deliver multiple new penetrations of the really extensive Barryroe field. In addition, it also provides for the acquisition of modern dynamic well test data that should assist in advancing the field to production.”
He added: “Over the coming months, we will be working with the APEC Consortium to close the transaction and finalize the specific timeline and the precise details of the drilling program. We are very pleased to have agreed this deal, which will allow us to avail of ‘state of the art’ drilling units and technical capabilities in order to advance Barryroe to first oil.”
Colin Lui, Chairman of APEC Energy Enterprise Limited commented: “APEC, supported by Jianyin Investment Company and China Offshore Services Ltd, are very pleased to have strategically joined forces with Providence and Lansdowne to develop the Barryroe field. This field has significant recoverable resources and we look forward to jointly developing this opportunity. Whilst the farm-out agreement has been agreed specifically for Barryroe, the parties have also agreed to jointly investigate further opportunities in other licensed blocks offshore Ireland in the future.”
Commenting on the news, Lansdowne CEO Steve Boldy said: “The Chinese Consortium brings a wealth of technical and operational expertise and experience and we look forward to finalizing the details of the drilling program that is expected to move the project forward to development.
“Upon closing, Lansdowne will retain a net 34.5MMboe of contingent resources (2C) for its 10% ownership of Barryroe, with significant additional upside in terms of further exploration potential. The third party funded drilling program will look to convert a sizeable amount of these resources in to proven and probable (2P) reserves ahead of subsequent development and production. With a current market cap of just $10M, Lansdowne’s valuation equates to less than $0.3 per contingent barrel for its 10% ownership.”