Providence Resources has signed an amended farm-out agreement with its Chinese partner for a license offshore Ireland where a drilling program of five firm wells is set to start in the second quarter of 2019.
Providence-operated Standard Exploration Licence (SEL) 1/11 contains the Barryroe oil accumulation. SEL 1/11 is operated by EXOLA (80%), a subsidiary of Providence, on behalf of its partner, Lansdowne Celtic Sea (20%). 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.
Barryroe farm-out with APEC
In March 2018 Providence and APEC, a privately owned Chinese company which has a strategic partnership with China Oilfield Services and JIC Capital Management Limited, entered into a farm-out agreement which assigned 50% equity in SEL 1/11 to APEC.
On Thursday, September 20 Providence informed that, following the completion of all required ancillary documentation and the receipt of both governmental consents, EXOLA, Lansdowne, and APEC have signed an amended and restated farm-out agreement.
Five firm & two option wells
The updated agreement provides for a fully cost-carried firm program comprising of the drilling and testing of four vertical wells and one horizontal sidetrack, plus the optional drilling of two additional horizontal wells, together with cash advances to EXOLA for certain agreed project and operational costs such as well site survey acquisition totaling $19.5 million.
Commenting, Tony O’Reilly, Chief Executive Officer of Providence Resources, said: “The finalization of these binding farm-out terms with APEC is transformational for Providence as it delivers a firm and comprehensive drilling program comprising of four vertical wells and one horizontal sidetrack, cash advances for certain operational costs of $19.5 million, plus the financing of two further optional wells. Subject to regulatory consents and appropriate arrangements with contractors, we expect mobilization to commence in Q2 2019.
“In this regard, we are also pleased to confirm that we have contracted Gardline’s Ocean Observer vessel to carry out the requisite site surveys during Q4 2018.
“This drilling program is a significant step forward for Barryroe as it is designed to provide modern dynamic data that will assist in the field development to production. Importantly, the structure of the farm-out transaction means that Providence has no upfront risk or capital exposure for the drilling program, whilst also providing a roadmap to take this project, subject to the results of the drilling and subsequent regulatory consents, to project sanction and then on to production.”
With the signing of the updated agreement, APEC will now proceed with the payment of $9 million to EXOLA for certain agreed front-loaded project related costs and a further $10.5 million payment will be made to EXOLA to cover future operational costs. This payment will be made 14 days prior to the start of drilling.
The drilling of four vertical wells will allow for the evaluation of the main Basal Wealden reservoir interval. The first well will include the drilling of a sidetrack to provide a 200-meter horizontal reservoir section in the Basal Wealden.
Drill-stem testing is planned for three of the four vertical wells, as well as the horizontal sidetrack.
The four vertical wells are located across the geographic extent of the Barryroe structure and are designed to test the full potential of the Basal Wealden.
Drilling to the underlying Purbeckian and Upper Jurassic section is planned in three of the four wells.
Planning for the drilling of these wells is already advanced, together with the consenting of the recently contracted Gardline “Ocean Observer” vessel to carry out the well site survey operations during Q4 2018, subject to regulatory approval.
Rig procurement, based on a Q2 2019 mobilization for the drilling program is also well advanced, as are contract discussions with various oil field service providers.
At the completion of the drilling program, APEC also has an option to drill, test and complete two further additional horizontal wells to the Basal Wealden reservoir interval.
APEC is directly responsible for paying 50% of all cost obligations associated with the drilling program, and the option wells.
EXOLA will remain the operator of SEL 1/11 for the execution of the drilling program. Following completion of the program, APEC will have the right to become the operator for the development/production phase.
Following governmental approval for the assignment of equity to APEC, the revised working interest will be APEC (50%), EXOLA (40%), and Lansdowne (10%), with EXOLA retaining the role of operator of SEL 1/11.
Providence cuts losses
Also on Thursday, Providence reported its results for the half year ended June 30, 2018.
During the period, the Irish company reduced its operating loss to €2.210 million from €3.916 million in H1 2017. The company also reduced its loss for the period to €2.371 million from €3.441 million in H1 2017.