Providence Resources - Strategic Review - Barryroe

Barryroe Offshore Energy

04/02/2022 09:44

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RNS Number : 7483A  Providence Resources PLC  04 February 2022

 

 

Barryroe - Strategic Review

 

Dublin and London - 4(th) February 2022

Further to our communication on 20(th) December 2021, this announcement is to
inform shareholders in relation to Providence Resources P.l.c.'s (PVR)
Strategy for the optimisation of the Barryroe Field. It sets out the status of
our application to secure the Lease Undertaking, as well as the PVR Technical
Strategy and approach envisaged to fund the preparatory appraisal work for the
initial phase of Barryroe's development.

 

Executive Summary

o Barryroe Lease Undertaking: regulatory urgency required to progress Barryroe
project

Since the update provided on the 20(th) of December 2021, the Board has
written on two occasions to The Minister for the Environment, Climate and
Communications, Eamon Ryan TD, requesting him to grant consent for the Lease
Undertaking. The Board set out a number of considerations and noted that a
decision not to grant the Lease Undertaking, or a protracted delay in doing
so, would mean that the potential of the Barryroe Field will not be realised.
In our view, this would represent a serious failure in the national effort to
transition the Irish economy to carbon neutral status by 2050.

 

The Board unreservedly supports Government and EU policy in relation to
tackling climate change. Given that gas and oil will be essential energy
sources for many years to come, the Board is confident that the potential
offered by successful exploitation of the Barryroe Field would be an important
element in Ireland's energy transition. Additionally, the Barryroe Field has
the potential to provide significant strategic and fiscal value to the Irish
economy at no cost to the Irish taxpayer.

 

o  PVR's Technical Strategy: structured to realise material value identified
by Independent CPR

The Board has completed its review and has, subject to Ministerial approval,
made a decision to proceed with an appraisal well in 2023 and, assuming a
satisfactory outcome, to proceed to first production in 2026, initially
focused on the Central Area in Barryroe only. A new Competent Persons Report
(CPR), by RPS Energy Consultants (RPS), confirms 81.2 MMstb of Gross 2C oil
resources that can be accessed through this initial two phase project.  A
summary of the CPR Report is contained in Appendix 1 to this announcement.
 The CPR, which remains consistent with the last independent assessment in
2013, confirmed a Net Present Value (NPV) of $401m to PVR's interest in this
initial project only, based on a 10% discount factor and a $70 Brent oil
price. The initial project is also anticipated to advance the potential for
further development of other Barryroe resevoirs, including its gas resources.
The Board believes this technical strategy to be optimal and pragmatic in
balancing risk and optimising value. It also maximises shareholder value, both
for shareholders and the country.

 

o  PVR's Financial Strategy: clear understanding of funding required

We now have a clear understanding as to the funding requirement for the
initial development in the Central area of the Barryroe Field. In essence,
fresh equity funding is required in 2022 to finance an appraisal well in 2023
and preparatory work around the initial development project.

 

James Menton, Executive Chairman, commented "With the benefit of four new
technical studies, including a Competent Persons Report (CPR) prepared by RPS
Energy Consultants Limited, the Board is confident that there is an attractive
economic and technical case for moving forward with our plans to optimise the
value of the Barryroe Field.  At this time, the Board's main focus is on
securing Ministerial consent for the Lease Undertaking as a matter of urgency.
 The Board is confident that Barryroe offers a highly valuable resource that
can contribute meaningfully to Irish energy security and will have a crucial
role to play in Ireland's energy transition. This is in addition to the
related economic contribution."

 

1.    Barryroe Lease Undertaking: regulatory urgency required to progress
Barryroe project

Since the Board's announcement on 20(th) December 2021, we have written, on
two separate occasions, to Minister Eamon Ryan TD requesting a grant of
Ministerial consent for the Lease Undertaking. The Board believes that, given
that seven months of the potential four-year lease undertaking has elapsed,
there is a need for urgency in granting Ministerial consent having regard to
the following:

 

o  The optimisation of the value of the Barryroe Field has been set in the
context of both Irish energy security and the transition to a carbon neutral
economy by 2050.

 

o  The Barryroe Field has the potential to provide significant strategic and
fiscal value to the Irish economy at no cost to the Irish taxpayer. PVR is
confident that the development of the Barryroe Field would create substantial
employment opportunities, as well as attracting investment to the Irish
economy and local Cork region.

 

o  The Board believes that it has discharged all of its responsibilities and
duties to comply with the GeoScience Regulatory Office's (GSRO)
requirements.

 

o  The final grant of a Lease Undertaking is key to capture the potential of
the Barryroe Field which remains one of the largest undeveloped off-shore oil
and gas fields in Europe. The overall Barryroe Field was independently
assessed in 2013 to hold 346 million barrels of oil equivalent (gross 2C
resources), believed to be mainly oil. The oil is "sweet", light and waxy.
Similar oil currently trades at a premium to the Brent Oil benchmark. The
field covers a large area and the reservoirs remain only partly appraised.

 

o  As set out in Section 2, the Board commissioned an updated CPR report from
RPS Energy Consultants, effective 1(st) January 2022 ("2022 Report").  In
line with our stated Board strategy, this 2022 report focused specifically and
solely on four segments of the Basal Wealden A sand reservoir, targeted for
the initial development.

 

o  The Board supports Government and EU policy in relation to tackling
climate change. The potential offered by the successful exploitation of the
Barryroe Field would be an important element in the execution of Government
policy, as enunciated by the Department of the Environment, Climate and
Communications' "Policy Statement on Security of Electricity Supply" (November
2021) and Section 3.7 of the Government's "National Risk Assessment 2021/2022
- Overview of Strategic Risk".

 

o  With the Corrib Field now in decline, and without any new finds, it is
currently projected that 100% of Ireland's gas will be imported by the end of
2031. Therefore, providing energy locally from the Barryroe Field makes both
economic and environmental sense.

 

o  The question of national energy security cannot be overstated,
particularly when set against current and possible future geopolitical
challenges.

 

A decision not to grant the Lease Undertaking, or to fail to do so on a timely
basis, would mean that the potential of the Barryroe Field could never be
realised. Apart from having fundamental and serious consequences for PVR's
future viability it would represent, in our view, a serious failure in
strategic policy making for the successful transition of Ireland's economy to
a carbon neutral position by 2050.

 

2.    PVR's Technical Strategy

In our announcement to shareholders on 20(th) December 2021, we indicated that
a realistic and pragmatic approach had been adopted by the Board in developing
our Barryroe Strategy given the current regulatory environment, energy
transition issues around security of supply and growing energy demand.

 

Given this objective, and having regard to the fact that the last independent
report on the Barryroe Field was in 2013, the Board commissioned an updated
Competent Persons Report from RPS - the 2022 Report.  In line with our stated
strategy, this 2022 Report focuses specifically and solely on the Basal
Wealden A sand reservoir in certain segments of the Barryroe Field
(specifically the Central Segments 1, 2, 3 and 4) which have been targeted for
initial development in Phases 1A and 1B, which approximate 25% of the total
Barryroe Field.

 

The Board's conclusion is that the key uncertainties impeding the development
of Barryroe could be substantially reduced by drilling an appraisal well,
subject to Ministerial approval, to target the Basal Wealden A sands.

 

The Technical team has now completed four major studies to underpin our
strategy.  They confirm the need for a further appraisal well and demonstrate
an economic route to production in 2026. These studies included:

o A static and dynamic modelling study of the Basal Wealden A sands to assess
the reservoir performance and the recovery factor likely to be achieved.

o A Development Options study, exploring various facility options for an
optimal oil and gas development case, using the reservoir modelling to inform
this work.

o The 2022 Report, which covered such areas as (a) Subsurface Review, (b)
Reservoir Engineering             Assessment, (c) Preliminary
Development Plan, (d) Production Profiles, (e) Cost Estimates, (f)
            Contingent Resources and (g) the Economic Valuation of
the PVR Development strategy.  The             2022 Report only
addressed the Basal Wealden A sand reservoir.

o Appraisal well conceptional planning which evaluated the value of the
information that might arise from various appraisal scenarios - assessing the
optimal target location, data acquisition and flow testing programmes.

 

The key observations and conclusions derived from the 2022 Report are as
follows:

o The oil reservoir initially targeted in just four Central Segments is
estimated to have 81.2MMstb in recoverable Gross 2C oil resources. This is
consistent with, and supports, previous independent assessments, reported in
2013, of the much larger reservoir potential of the overall field.

o This initial development project can be phased such that early revenues from
the wells in Phase 1A can help to fund the further wells for Phase 1B.

o With a discount rate of 10% and a Brent oil price of $70, the post-tax NPV
to PVR's 2C Resources accessed in Phase 1A is estimated to be $270 million,
increasing to $401 million when combined with Phase 1B. The 1C, 2C and 3C
resource values, at different discount rates, are tabulated in Appendix 1.

o The 2022 Report also accepted that a successful appraisal well, planned for
2023, will de-risk the development of the Basal Wealden A sands in the Central
Area to facilitate moving to a pre-Front End Engineering Design (FEED)
development work plan.

o The PVR Technical team has recommended a sub-sea development, connected to a
Floating Production, Storage and Offloading vessel (FPSO), to develop the
Basal Wealden A sand reservoir.  The initial Phase 1A would consist of 10
wells (5 producers, 4 water injectors and a gas injection well) for Segments
1, 2 and 3 and then Phase 1B would target Segment 4 using 5 wells (3 producers
and 2 water injectors).

 

Given the above, the Board is satisfied that:

o An economically and technically attractive case for an initial Barryroe oil
and gas development has been identified and independently confirmed.

o The detailed planning of the appraisal well should proceed, targeting a
mid-2023 drilling campaign.

o These plans for Barryroe should be further refined over the next year so as
to be ready, upon the appraisal well results, to move promptly to an initial
development project to target first oil production before the end of 2026.

 

3.    PVR's Financial Strategy

o  As in past programmes, PVR's appraisal drilling is typically funded
entirely through the equity resources of the licensees. This appraisal
programme will be no exception.

 

o  PVR's share of the cost of the envisaged appraisal well and associated
pre-development technical studies is currently estimated at $65 million, which
will be sufficient to carry forward the Barryroe project until a Final
Investment Decision (FID) in 2024.

 

o  Subject to the granting of the Lease Undertaking, the Board expects to
finalise proposals to fund its share of the costs of the Barryroe appraisal
programme through 2023.

 

o  The Board has initiated preliminary discussions with a number of potential
industry partners, one or more of which may be attracted to participate in the
Barryroe licence at this stage, subject to the grant of the Ministerial
consent to the Lease Undertaking. Were such discussions to be concluded
positively, then both the PVR share of the field and its costs would be
reduced.

 

o  No detailed financing plan for the post appraisal well initial development
phase is being considered at this time. Appraisal success would be anticipated
to significantly further 'de-risk' the project, making it attractive both to
other industry players and to providers of infrastructure debt finance.

 

 

ENDS

 

 

 

 

 

 

Investor Enquiries:

 

o  Providence Resources P.l.c.                     Tel:
353 1 219 4074

James Menton

Executive Chair

 

Investor Relations

Job Langbroek

 

o  J & E
Davy
Tel: 353 1 679 6363

Anthony Farrell

 

Media Enquiries:

 

o  AM O'Sullivan
PR
Tel: 353 87 9881890 / tina@amosullivanpr.ie

Tina Quinn

 

 

APPENDIX 1

 

COMPETENT PERSON'S REPORT BASAL WEALDEN GROUP 'A' SAND BARRYROE FIELD, NORTH
CELTIC SEA, IRELAND

 

The report was completed by RPS under appointment by Providence Resources.

 

All figures below are on a full 100% basis and extracted from the Competent
Person's Report. Providence Resources holds an 80% share in SEL 1/11.

 

This report summarises the proposed early phase development of oil from the
Basal Wealden Group A Sand in a limited area of the Barryroe Field within SEL
1/11. Providence has subdivided the study area into a number of segments based
on the position of the largest faults. This report addresses four of the key
segments, Segments 1, 2, 3 and 4 which Providence is targeting for initial
development.

 

A summary of contingent resources for the oil is based on a phased development
plan. Assuming the oil case is established by appraisal, Providence proposes a
subsea development connected to an FPSO. The development is scheduled in two
phases: phase 1A and 1B.

 

 

Oil Contingent Resources Phase 1A and 1B

Basal Wealden A Sands in Segments 1 to 4, Barryroe Field

 SUMMARY OF OIL CONTINGENT RESOURCES

 As of 1(st) January 2022

 BASE CASE PRICES AND COSTS
 Asset                     Full Field Gross Resources(1) (MMstb)        Providence Net Working Interest(2) (MMstb)         Pd(3)
                           1C             2C             3C             1C               2C               3C
 Barryroe Phase 1A and 1B  52.5           81.2           109.1          42.0             64.9             87.3             75%
 Notes:

 (1)Gross field Resources (100% basis) after economic limit test.

 (2)Providence holds an 80% working interest in SEL 1/11, North Celtic Sea
 Basin, Ireland

 (3)Chance of Development ("Pd") is the estimated probability that a known
 accumulation, once discovered, will be commercially developed.

 

 

 

 

Post-Tax Valuation at RPS Base Case Price Scenario

Basal Wealden A Sands in Segments 1 to 4, Barryroe Field

 

                ELT Date  Post-Tax Net Present Value (Net to Providence)

                          As of 1(st) January 2022

                          (US$ Million, MOD)
 Discount Rate            0.0%          8.0%          10.0%         12.0%
 Phase 1A
 1C             2037      (14)          (100)         (114)         (124)
 2C             2046      963           359           270           199
 3C             2046      1,841         642           492           374
 Phase 1A and 1B
 1C             2046      423           39            (17)          (61)
 2C             2046      1,732         550           401           284
 3C             2046      2,987         926           688           506

 

 

Estimated In-Place Volumes for the Basal Wealden A Sand Segments 1 to 4 in
Barryroe

                                                                  Low    Best   High
                                                                  MMstb  MMstb  MMstb
 Basal Wealden A sand STOIIP (oil case only)                      203    278    372

                                                                  MMstb  MMstb  MMstb
 Basal Wealden A sand STOIIP (oil with gas case)                  153    241    358
                                                                  Bscf   Bscf   Bscf
 Basal Wealden A sand GIIP (gas)                                  7.2    46     166

                                                                  MMstb  MMstb  MMstb
 Barryroe Phase 1A CONTINGENT RESOURCES (oil case only)           28.0   58.3   77.4
 Barryroe Phase 1A & 1B CONTINGENT RESOURCES (oil case only)      52.5   81.2   109.1

ANNOUNCEMENT

This announcement has been reviewed for Providence Resources PLC by Marco
Santucci. Marco has 15 years of experience in the Energy Industry (Shell, Gas
Plus Italiana, Edison and NRG). Marco has an MSC in Petroleum Engineering from
the University of Bologna and is a registered Engineer in Italy.

 

All Resources definitions and estimates shown in this report are based on the
2018 Petroleum Resource Management System ("PRMS") of
SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE.

 

DEFINITIONS

MMBO                     Million of Barrels of Oil

MMstb                     Million stock tank barrels

STOIIP                      Stock Tank Oil Initially In
Place

GIIP                           Gas Initially in
place

Bscf                           Billion standard
cubic feet (gas)

CPR                            Competent Person's
Report

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