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Liberum Capital says ‘buy’ Providence Resources as it prepares to drill offshore Ireland

Proactive Investors

Liberum Capital today began its coverage on Irish oil firm Providence Resource (LON:PVR) with ‘buy’ recommendation and an ambitious 650p price target, which suggests the shares could more than triple in value from the current price of 202p.

The broker’s bullish report comes as Providence prepares to start drilling on the Barryroe oil discovery, following the successful completion of a seismic acquisition programme in the Celtic sea during the summer. It is expected that the Barryroe well will be spudded some time in October.

Providence is about to embark on the most ambitious multi-basin, multi-year drilling programme ever to test the true hydrocarbon potential around Ireland, Liberum said in a note to clients.

Backing up his punchy assessment, Liberum analyst Andrew Whittock, surmised: “Over the next 2 years it will drill 7 wells to appraise 4 existing discoveries and test 3 very significant exploration prospects.

“The (current) share price is only half our 418p value of commercial assets and a single new commercial development could more than double our valuation.” 

Zooming in on specific projects that make up his valuation, Whittock explained: “We believe the Barryroe, Spanish Point and Dragon discoveries are very close to commerciality but we include just Barryroe in our base valuation, along with the UK Singleton oil field. 

“The 418p NAV excludes other appraisal or exploration potential and is more than twice the share price, indicating the value of Providence has been overlooked. 

“Moreover, the two best defined exploration prospects (Dalkey Island with Petronas; and Dunquin with ExxonMobil + Eni) are each worth more than 350p risked and if successful could add more than £10.00 a share to valuations.”

While on the face of it this may seem like a lofty and perhaps overly ambitious valuation, Liberum is not the first City firm to see so much ‘blue sky’ over these projects in the waters off the emerald isle.

In fact Liberum’s 650p target is not even close to the most bullish assessment on the stock, made by Cenkos Securities in March, which estimated the group could be worth more than £16 a share. 

Indeed over the past 6 months or so there have been several bullish calls on the stock. 

Ambrian Capital’s ‘buy’ recommendation in May set a 645p target, while Dublin firm Davy has its sights set on 919p a share.

Providence is kicking off the drill programme with the 50 per cent owned Barryroe project – the other partners are San Leon Energy (30%) and Lansdowne Oil & Gas (20%) – which was first discovered back in the 1970’s.

Barryroe has previously flowed oil at rates of 1,400-1,600 barrels a day and the new modern well that is being planned will need to improve a little on that historic benchmark.

According to independent consultant RPS Energy Barryroe needs to flow at rates above 1,800 barrels a day to be economic. The independent assessment also estimates there is 60 million barrels of crude recoverable from 373 million barrels in place.

Following shortly after Barryroe is a re-drill of the nearby Hook Head field, which was first discovered in 1971. Here Providence owns 72.5 per cent and like Barryroe it is the operator of the field. After these two development plays, the group will then move on to two exploration plays – Dalkey Island off the coast of Dublin and Rathlin Island, off the north-eastern corner of Northern Ireland.

Posted Date: 
9 September 2011