Every Cloud Has A Silver Lining, As Investors Await The Irish Charm!
Lansdowne Oil & Gas was hit last week following the news that well site surveying at its 10pc-owned Barryroe oilfield has been delayed following a legal appeal by an Irish environmental group. However, with the firm expecting the delay to be minimal and many of the project’s fundamentals remaining in place, we look at whether shares represent a decent buying opportunity at just 1.7p each.
Lansdowne owns a 10pc position in the Barryroe oil field in the North Celtic Sea Basin, offshore Ireland. Barryroe is operated by Providence subsidiary EXOLA and holds audited gross 2C resources of 346MMboe in its main Basal Wealden and Middle Wealden reservoirs. Of this, Lansdowne has a net exposure of 34.5MMboe.
Alongside these primary resources, the site offers substantial upside potential through additional appraisal and exploration targets that will be targeted by an upcoming drilling programme. Indeed, Providence believes the area’s stacked Lower Wealden sands and Purbeckian sands contain 778MMbbls and has said that exploration potential exists in the deeper Jurassic targets underlying Barryroe.
Earlier this year, EXOLA and Lansdowne farmed-out a 50pc interest in Barryroe to a consortium of Chinese investors led by APEC Energy. The deal, which reduced Lansdowne’s stake in the project from 20pc to 10pc, sees APEC fund 50pc of costs associated with a drilling programme of four wells and one horizontal side-track. It will also pay to test the wells and has an option to drill and test two further wells. Finally, following drill completion, it has the right to become operator for Barryroe’s development/production phase.
Alongside this, the business will finance the remaining 50pc of costs attributable to Exola and Lansdowne through a non-recourse loan facility repayable from future production cash-flow at Barryroe. Until this loan has been repaid, APEC will enjoy 80pc of production cash flow. From that point onwards the firm will get 50pc of production cash-flow while EXOLA and Lansdowne will receive 40pc and 10pc respectively.
While the farm-in diluted Lansdowne’s Barryroe stake, the drilling programme advances the project significantly. Indeed, the four vertical wells will be based across the geographic extent of Barryroe and will evaluate the main Basal Wealden reservoir while the sidetrack will drill a horizontal reservoir section into the area. Meanwhile, three of the four wells will drill into the underlying Purbeckian and Upper Jurassic resources to further assess Barryroe’s upside potential.
In its latest presentation, dated October 2018, Lansdowne said planning for the programme was already advanced ahead of expected drilling in the second quarter of 2019. It noted that a vessel had been consented to carry out well site survey operations during Q4 2018, while rig procurement and contract discussion with various oil fields services providers were well advanced.
However, these plans suffered a setback at the end of last month when Providence announced that it has decided not to act on the well site survey permission granted to it by Ireland’s Minister of Communications, Climate Action, and Environment.
It took this decision with immediate effect upon learning that An Taisce – Ireland’s National Trust – had challenged the legality of the permission. The body is calling for a judicial review into the way the consent was granted while raising other issues relating to environmental assessment and application with EU law.
Providence said well site survey activities will now take place as early as practicable in 2019 in advance of its drilling programme at Barryroe, scheduled for later in the year. Crucially, it added: ‘Without prejudice to the site survey application process, EXOLA is planning to be in a position to conduct its well site survey operations in spring 2019 in advance of the commencement of the planned drilling operations in Q3 2019, such drilling operations being subject to the requisite approvals and consents from the Minister.’
Worth a look?
Following news of the delay, shares in Providence dipped 10.3pc, continuing a bad few weeks that has seen it fall from highs of 2.8p. With the firm expecting its drilling programme to be pushed back by just one quarter, there is an argument to be made that the sell-off has been overdone, especially given that no other fundamentals seem to have changed.
One potential red flag is that the business’s cash balance sat at just £266,000 as of 10 October 2018. However, with admin fees coming in at just £35,000 a month, c.£96,000 of warrants in the money, and little project financing on the horizon, this could last for some time.
There is, of course, a risk that the delay at Barryroe could end up being longer than one quarter. However, if you were already interested in using Lansdowne to get exposure to the prospective Barryroe project, then this weakness could present a decent buying opportunity.
Indeed, back in March, the firm said that with a market cap of $10M, Lansdowne’s valuation equates to less than US$0.3 per contingent barrel for its 10% ownership. With a current market cap of £11.25m or $14.3m, the firm once again sits relatively close to these attractive fundamentals following its recent dip.
You can find more information on Lansdowne Oil & Gas by clicking here
The author was remunerated but does not hold shares in the company