Providence Resources - Strategic Review – Preliminary Results

Barryroe Offshore Energy

20/12/2021 06:59

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RNS Number : 1171W  Providence Resources PLC  20 December 2021

Strategic Review - Preliminary Results

 

Dublin and London - 20(th) December 2021:

 

As indicated in our announcement dated 29(th) September 2021, which covered
Providence Resources P.l.c.'s (PVR) unaudited interim results for the first
six months of fiscal 2021, the new PVR Board confirmed that it had initiated a
full Strategic Review of the development potential of the Barryroe Field.
The singular objective of the review was to optimise value for our
shareholders, in the context of both Irish energy security and the transition
to a carbon neutral economy by 2050, in line with stated Irish Government
objectives.

 

At that time, the new PVR Board indicated that the Strategic Review would be
completed by Q4 of 2021.  For a variety of reasons, there remain a number of
key areas outstanding for consideration by the new PVR Board, in order to
present a compelling case to ensure the achievement of our key objective - the
optimisation of the value of the Barryroe Field.

 

The purpose of this status update is to provide you with an update on the
progress made to-date in the formulation of the Barryroe Technical Strategy.
We are confident that the remaining steps required to complete our Strategic
Review will enable us to report back conclusively and positively to our
shareholders by the end of January 2022.

 

1.       Executive Summary

·     Securing the Lease Undertaking

All required technical and financial information in relation to the Barryroe
Lease Undertaking, which requires Ministerial consent, has been submitted to
the GeoScience Regulation Office (GSRO). The Board is confident that it has
discharged all of its responsibilities and will continue to examine all
options and act upon them, as required, to ensure that our shareholders'
interests are protected.

 

·     An effective technical strategy to optimise the value of the
Barryroe Field

A realistic and pragmatic approach has been adopted by the Board in the
formulation of our Barryroe Strategy, in the light of the current regulatory
environment, energy transition issues around security of supply and growing
energy demand. Development of our Barryroe technical strategy is progressing
satisfactorily. One of the principal preliminary conclusions from the
technical review is that the key uncertainties impeding the future development
of Barryroe could be substantially reduced by further appraisal drilling.

 

James Menton, Executive Chairman, commented "The Board is confident in both
the process adopted and the skills, competencies and commitment of the new
technical leadership team. Our preliminary conclusion is that an appraisal
well will be essential before embarking on an initial phased development and
the conclusions of the Barryroe Strategic Review will be communicated to
shareholders by the end of January 2022."

 

2.       PVR Board - Key Objectives

Following the formation of the new PVR Board approximately 140 days ago, we
immediately undertook an evaluation of our key objectives and priorities.

 

Our key objectives can be summarised as follows:

1.    Securing the award of the Lease Undertaking in relation to the
Barryroe Field.

2.    Developing an effective technical strategy for the optimisation of
the value of the Barryroe Field through a phased development scheme and having
regard to successive failed proposals.

3.    Considering and developing an appropriate funding strategy.

4.    Positioning PVR to play a key role during the energy transition phase
to 2050.

 

Consequent upon these objectives, our initial and continuing priorities are as
follows:

·     Follow-up and engagement with the GSRO in relation to our
application for the Lease Undertaking

·     Ensuring that we have the breadth and depth of experience,
competency and skills within our technical team to support the Board in the
formulation of its Barryroe Strategy.

·     Enhancing the understanding of the Barryroe project and the
opportunities it presents for all shareholders and other key stakeholders to
facilitate the achievement of the Board's objectives.

 

The Board believes that PVR is well positioned to play a pivotal role in the
energy transition phase to 2050, having regard to the many benefits that a
successful Barryroe development would yield including, inter alia,

·     Contribution to energy transition planning, particularly security
of supply.

·     Significant strategic and fiscal value to the Irish economy (at no
cost to the Irish taxpayer).

·     Reducing Ireland's dependency on the importation of energy
resources.

 

3.       PVR Board Perspectives and Key Actions

The new Board has adopted a realistic and pragmatic attitude towards the
formulation of our Barryroe Strategy.  In addition to the technical and
economic aspects of the Barryroe project, we have had careful regard to the
dynamics of the current regulatory environment and the energy transition
issues of security of supply, growing energy demand and the continuing need to
attract foreign direct investment in the pathway to achieve the ultimate goal
of carbon neutrality by 2050.

 

The new PVR Board believes that these conditions offer a unique opportunity to
play a key role during the transition phase - namely to be potentially "part
of the solution".

 

As noted, the new PVR Board was formed approximately 140 days ago.  As a
priority from the outset, the new Board has been acutely conscious of the need
to secure the regulatory Lease Undertaking, which is subject to Ministerial
consent and is a prerequisite to optimise the value of the Barryroe Field.
We believe that PVR has discharged its responsibilities through the submission
of the required technical and financial information to the GSRO, in order to
comply fully with their requirements. We will continue to examine all options
and act upon them, as required, in order to ensure that our shareholders'
interests are protected.

 

Secondly, in the wake of the failed "Spot On" farm out and PVR's resumption of
direct management of the Barryroe project, we evaluated both our technical
approach and capacities.  Consequently, we made changes to the team, and we
appointed NRG Well Management International Ltd (NRG) to lead the recruitment
and organisation of an expanded technical team.  NRG has prior experience of
working with PVR and particularly well 48/24 - 10z, the last appraisal well
drilled in Barryroe in 2011/2012. Andrew Mackay, a director of PVR, is
Chairman of NRG. The contract with NRG is for €115,000.  The PVR directors
(Mr Mackay excepted) consider, having consulted with our nominated adviser and
Euronext Growth Adviser, Davy, that the terms of the NRG contract are fair and
reasonable insofar as its shareholders are concerned.

 

Thirdly, given the particular significance of this project for Cork and the
south coast, we have retained a specialist, Cork-headquartered agency, AM
O'Sullivan PR, to develop a stakeholder management and communication strategy
to enhance understanding of the Barryroe project and the opportunities it
presents. Ms. Ann-Marie O'Sullivan, a director of PVR, is also the CEO of AM
O'Sullivan PR. The contract has an equivalent annual value of €81,000.  The
PVR directors (Ms. O'Sullivan excepted) consider, having consulted with our
nominated adviser and Euronext Growth Adviser, Davy, that the terms of the
contract are fair and reasonable insofar as its shareholders are concerned.

 

Finally, we have initiated efforts to recruit a new CEO having regard to the
status of the Lease Undertaking and the completion of the Barryroe Strategic
Review.

 

4.    GSRO Lease Undertaking - Status and Approach

As shareholders are aware, the granting of the Lease Undertaking for the
Barryroe Field, which is subject to Ministerial consent, is fundamental to the
execution of the Board's strategy.  In the absence thereof, and indeed
without receipt on a timely basis, the Board may not be able to achieve its
stated objectives, with fundamental and serious consequences for PVR's future
viability.

 

The receipt of a Barryroe Lease Undertaking would provide PVR and its partner
Lansdowne Celtic Sea Ltd. ('Lansdowne', our 20% partner) with an exclusive
right to apply for a Petroleum Lease (a) for a defined period and (b) in
return for an agreed work programme.  The Lease Undertaking is a natural
follow-on from the Barryroe SEL 1/11 exploration licence.  The grant of the
Lease Undertaking would allow PVR, together with Lansdowne, to proceed with
the execution of the Barryroe technical strategy.  The work proposed during
the period of the Lease Undertaking is designed to reduce uncertainties, to
confirm the extent of hydrocarbons across the field segment targeted for
initial development and thus, potentially, to lead to a declaration of
commerciality and the award of a Petroleum Lease, subject to both Ministerial
consent and our anticipated phased development scheme.

 

As indicated in our 2021 Half-Year report, the Board outlined the then status
of the Lease Undertaking application.  Since that date, the Board has been in
contact with the GSRO on three occasions. The latest update from the GSRO was
received on December 10(th), with confirmation that the application is still
being reviewed and assessed by the Department for the Environment, Climate and
Communications (DECC) and the GSRO.  The PVR Board will continue to engage
with DECC and the GSRO.

 

5.     PVR Barryroe - Strategic Background and Environment

Since the formation of the new PVR Board, there have been a number of
important developments not only in the Irish, but also the European and wider
global energy landscape.  These include, but are not limited to:

·     The enactment of the Climate Action and Low Carbon Development
Bill, outlining the Government's strategy and legislation to ensure that
Ireland's carbon neutral targets are achieved by 2050.

·     Continuing and escalating price hikes in energy costs.

·     Major concerns arising from the key issue of security of energy
supply to 2030 and beyond.  This issue is not limited to Ireland but is also
influenced by European geo-political matters, such as the supply of Russian
gas through the Nord Stream2 gas pipeline.

·     The Government's policy statement, dated 30(th) November 2021, on
security of electricity supply. This sets out various policy decisions to
address security of supply issues, including the need for significant
investment in "flexible conventional electricity generation" which would
include gas-fired and gasoil/distillate fired generation.

·     In local economic terms, the recognition of the importance of a
sensible transition over the next decade, given the value of existing oil and
gas infrastructure within the Cork region and the need to plan accordingly.

 

The new PVR Board and its technical team have had regard to all of these
relevant factors and influences in the formulation of our Barryroe Strategy.

 

In simple terms, and as stated, PVR's Barryroe Field can, potentially, be
"part of the solution" in the sensible and effective energy transition of
Ireland's economy to 2050 and thus play its role in:

·     Aligning with Government and EU energy policy in Climate Change
objectives.

·     Underpinning Ireland's security of supply over this transition
period.

·     Alleviating various challenges to supply into Ireland's National
Grid.

·     Generating significant economic benefits to Ireland's economy, at
no cost to the Irish taxpayer.

 

All of the above is, however, predicated on the timely grant of the Lease
Undertaking in order to enable the Board to execute our Barryroe Strategy.

 

6.    PVR Technical Strategy

 

6.1  The Barryroe Technical Strategy

The PVR Board seeks to maximise the return on investment at Barryroe and, as
such, the technical and economic assessment is focused on selecting the
optimised development solution that will successfully achieve this. The
optimal solution for Barryroe is one that will deliver value within the
timescale of the eventual transition to a hydrocarbon-free energy production
and PVR's ability to fund this development.

 

From 2014 to April 2021, all attempts to introduce a Farm-In partner to
expedite development of the Barryroe discovered resources foundered.  In
April 2021, the failure of the SpotOn EDS proposition obliged PVR to
fundamentally reassess the Barryroe technical and economic factors. Initially,
several workstreams were established using individual specialist advisers and
contractors.

 

The focus shifted to those resources that are more certain, and for which
subsurface data is more proximal to the Central Segments of the field most
closely connected to the 48/24-10z discovery well, where hydrocarbons were
previously found and tested. An independent reservoir engineering consultancy
was retained to assist in remodelling the hydrocarbon recovery potential and
they will also shortly finalise an updated Competent Persons Report (CPR) on
these segments of the field only.

 

Following the departure of the Chief Executive in mid-October 2021, NRG was
contracted to boost capabilities and to expedite and integrate information and
analyses arising from the various workstreams into a coherent framework. That
work is well advanced and will reach completion during January 2022 to support
key Board decisions on the best way forward.

 

Since July 2021, the new PVR Board has met on fourteen occasions to supervise
and monitor progress on this thorough review of all the technical,
environmental and economic data. Importantly, the PVR Board preliminary
conclusion is that the key uncertainties impeding the future development of
Barryroe could be substantially reduced by further appraisal drilling.

 

In support of this pending appraisal well decision, the team has:

·     Confirmed a previously identified well location as optimal.

·     Successfully completed a seabed site survey

·     Realistic expectations, given planning, logistics and regulatory
consent processes, that the appraisal well could be drilled and evaluated
during 2023.

 

We anticipate that a new appraisal well will provide excellent technical
information to enable execution of the first phase of development of
hydrocarbon resources at Barryroe. Preliminary conceptual planning has been
progressed with a view to a sequenced development within the Central Segments
of the overall Barryroe field, with first production envisaged during 2026.

 

The 2011 and 2013 Competent Persons Reports assessed the overall Barryroe
accumulation to be 346 mmboe of recoverable hydrocarbons, primarily oil,
categorised as '2C' Contingent Resources. The appraisal well and initial
development project now being pursued targets the most readily accessible
portion of the overall field hydrocarbons, those assessed to lie within the
Central Segments of the field.

 

Following successful exploitation through this initial phase, it is
anticipated that further phases of development would target the resources
assessed to be held in other Segments of the field.

 

The appraisal stage of the Barryroe development project will be a success if
sufficient information is obtained from the appraisal well to identify the
technically and commercially optimal future development strategy, where an
investable development plan is produced and engagement with environmental
regulators has provided confidence of regulatory approval.

 

Previous attempts to embark directly on an Early Development Scheme (EDS),
without the necessary preparatory appraisal work, have serially proven to be
unworkable for both financial and technical reasons.

 

6.2 Key Decisions

The key decision criteria are associated with the reduction of subsurface
uncertainty and, key to this is the level of confidence in the resources
targeted being sufficient to justify the cost of the appraisal well itself.
 In reaching its final conclusions over the coming weeks, the PVR Board will
have satisfied itself on the following questions:

(1)   That there is a compelling technical and financial argument for
drilling an appraisal well.

(2)   That the optimal appraisal well location has been selected.

(3)   That the targeting and outline design of the appraisal well is
appropriate for the initial phased development ambition.

(4)   Selecting the development of an optimal approach if oil and gas are
confirmed by the appraisal well as regards a phased oil, and then gas,
development.

(5)   Given a successful appraisal well, there is an investable project
development scheme.

 

At this stage, the Board's expected conclusion is that an appraisal well is
required to gain further confidence about the extent and characteristics of
the hydrocarbons in these first segments of the Barryroe Field to be targeted
for initial development. The appraisal programme is anticipated to reduce
uncertainties sufficiently to support an investable phased development scheme.

 

6.3 Next Steps

The next steps are as follows:

(1)     Secure the Lease Undertaking.

(2)     Complete the current Barryroe technical and commercial
evaluations.

(3)     Finalise the Board's review process, currently anticipated to
confirm a recommendation to drill an appraisal well to substantially reduce
subsurface uncertainties.

(4)     Secure funding for the appraisal programme.

(5)     Plan the appraisal well in detail, contract a suitable rig and
execute the drilling and appraisal data acquisition programme.

(6)     Progress work on the conceptual designs for development wells and
facilities.

(7)     Analyse the appraisal data and progress the selection amongst
post-appraisal development options to an appropriate conclusion.

 

ENDS

 

 

INVESTOR ENQUIRIES

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

James Menton

Executive Chairman

 

Job Langbroek

Investor Relations

 

J&E Davy
Tel: +353 1 679 6363

Anthony Farrell

 

MEDIA ENQUIRIES

AM O'Sullivan
PR
Tel: +353 87 988 1890

Tina
Quinn

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