Providence Resources extends Barryroe back-stop date, shrinks board

Ireland-based energy company Providence Resources updated the market on Monday, reporting that on the subject of the Barryroe farm-out transaction, it had agreed to a further extension of the back-stop date.

The AIM-traded firm said standard exploration licence 1/11, which contains the Barryroe oil accumulation was operated by its wholly-owned subsidiary EXOLA on behalf of its partners APEC Energy Enterprises and Lansdowne Celtic Sea.

It said the area lay in around 100-metre water depth in the North Celtic Sea Basin, and was located about 50 kilometres off the south coast of Ireland.

On 5 June, the company had announced that APEC, EXOLA and Lansdowne had agreed to certain amendments to the farm-out agreement for the Barryroe Project, including a revised backstop date with APEC for receipt of the $9m loan advance to 14 June, which was subsequently extended through various extensions to 2 August.

“As at close of business on 2 August, no funds had been received in the company’s account as the payment date is still pending due to final processing by HSBC,” the company’s board said in its statement.

“Accordingly, to facilitate this, the Barryroe Partners have agreed to a further backstop extension of on or before 12 August.”

Providence said it was still waiting for consent to conduct a site survey over Barryroe, adding that as of 2 August, the application was still pending with Ireland’s Department of Communications, Climate Action and Environment.

The board said it believed that the carrying out of the site survey in the immediate term was “essential” to expedite the forward drilling plans for the Barryroe Project, which would be managed by a dedicated project management team.

Providence Resources also updated the market on the proposed “re-engineering” of its business model, explaining that in its 2018 full-year results on 28 June, it announced that it had carried out a strategic review of its operations to ensure that its business model continued to be “fit for purpose”.

As a result, the board said it had concluded that there was an immediate requirement to re-engineer its business model to reflect the changes evident in its operating environment.

It said that re-engineering reflected a number of material factors, including the company’s success in farming out the majority of its portfolio, which led to the transfer of operatorship in most of the firm’s key assets, and a “substantially reduced” technical role for the company.

The re-engineering also reflected the fact that the company was not a revenue-generating company, and the fact that the company’s past two years of working capital had been financed solely through the completion of farm-out deals with third parties.

It also reflected its inability to pursue international expansion.

“Since that announcement, the company has continued to progress this business re-engineering by implementing a project-based, outsourced business model which is more aligned with the current reduced and sporadic nature of its operated activities.

“The company has engaged in a consultation process with its staff and its board and conditional on the company having sufficient working capital to implement the necessary changes, [a number of] actions have been identified as necessary,” the board said.

Those actions included the company vacating its current Dublin office early in the fourth quarter, at the expiry of the current lease, and the relocation to a smaller serviced facility in Dublin.

Providence would also make all technical and support staff redundant, change the size and composition of the board of directors, and reduce the use of various services providers and advisors.

“The company projects that, when implemented, the annual cost base of the business, excluding capital expenditure, will be reduced to $1.9m from $5.3m currently, representing a 65% reduction in total annualised costs.”

As at 2 August, the firm had unaudited cash in bank of approximately $1.45m.

Providence said it had received further assurances that the $10m loan advances due under the updated farm-out agreement were in the process of being paid.

“However, the board advises that, should these funds not be received by the revised backstop date and taking into account creditors on the balance sheet and existing forward commitments, including the necessary planned site survey at Barryroe and the proposed business re-engineering, the company would need to put in place alternative financing arrangements in order to provide it with sufficient working capital beyond the end of August 2019.”

Finally, Providence announced a number of planned changes to the composition of its board, explaining that as part of its re-engineering process, the board felt that it was an “opportune time” to reduce the size and composition of the board, consistent with its business needs.

It said technical director John O’Sullivan would step down with immediate effect, and non-executive director James McCarthy would not seek re-election at the upcoming annual general meeting in September.

Non-executive director Lex Gamble would step down on 31 December, and non-executive director Philip O’Quigley would not seek re-election at the 2020 annual general meeting.

The company said the 2019 annual general meeting would take place at the Hilton Hotel in Dublin on 12 September, the board confirmed.