The countdown to the Providence Resources farm-in begins… – place your bets!

As it becomes ever more apparent that the long awaited Barryroe farm in conclusion is now imminent going by remarks from the company last Tuesday, here’s a snippet from brokerage house TPH Energy Research of the equity implications (note: sterling prices are based upon a $1.55 FX rate and so at the current rate, target prices below would be a shade lower in sterling terms):

“Valuation: We have built up our Barryroe valuation using different scenarios and risk levels, assuming first production is not until 2017.

Our low case (1P) scenario is assuming the low case 17% recovery factor on just the Basal Wealden reservoir (146mmboe gross with 88% oil), a 50% haircut to the PVR expected initial horizontal flow rate of 7,000bbl/d and 5.7mmbbl EUR per well which gives an F&D cost of $27/boe. This gives an NPV of $14.4/bbl which is worth £16.30/sh unrisked or £4.08/sh risked (50% geological and 50% commercialisation CoS).

Our mid-case (2P) scenario is assuming the mid-case recovery factor on just the Basal Wealden reservoir (266mmboe gross) with IP rates and EURs in line with PVR assumptions which gives an F&D cost of $15/boe. This gives an NPV of $20/bbl which is worth an incremental £23/sh unrisked or £3.50/sh risked (33% geological and 50% commercialisation CoS on the incremental resource).

We also include in the 2P scenario the Middle Wealden assuming a 16% recovery factor (52mmboe) which has an NPV of $10/bbl and is worth £4.50/sh unrisked or £0.42/sh risked (33% geological and 50% commercialisation CoS on the incremental resource).

Our high-case (3P) scenario is assuming the high-case 43% recovery factor on the Basal Wealden reservoir (368mmboe gross) plus a 16% recovery factor on the Middle Wealden, with IP rates and EURs in line with PVR assumptions, which gives an F&D cost of $14/boe. This gives an NPV of $20/bbl which is worth an incremental £20/sh unrisked or 57p/sh risked (10% geological and 50% commercialisation CoS on the incremental resource).”

From a technical perspective, the inverse head and shoulders and cup and saucer formation continues to play out and targets initially 160-180p. The devil will be in the detail but the analyst community seem to believe figures approaching 700p could be seen. Is this the last chance for the discounted stock grab? We’re in!

In speaking with a couple of analysts close to the company today, there is a train of thought that IF the farm in is completed and which will no doubt result in funding back in the company and scheduled drilling next year on Barryroe, there is a good possibility of a bid for the company should the discount to the stock’s risked NAV not close (remember this is estimated upwards of £14!). We can only hope! What is certainly logical however is that the drubbing that the shares have seen this last 18 months have left them one of the cheapest globally on an NAV discount basis & thus will not have gone unnoticed within the industry, particularly considering that the company holds unarguably the best portfolio of accessible condensate fields in Ireland.

CLEAR DISCLOSURE – EXPOSURE TO PROVIDENCE RESOURCES IS HELD WITHIN TITAN’S FUNDS AND PERSONALLY BY RICHARD JENNINGS.