OilVoice - Providence Resources Pull Out of Kinsale Head Gas Storage Plan

Providence Resources Pull Out of Kinsale Head Gas Storage Plan

Wednesday, May 26, 2010

Providence Resources P.l.c., the AIM and ESM listed exploration and production company, announces that it has elected not to complete the acquisition of 40% of the Kinsale Head Assets because the upfront investment required is now at a significant variance to the original proposal and the economics of the deal have therefore changed materially. Providence has advised PETRONAS accordingly. An option, exercised in September 2009 with an initial cash deposit of $3.8 million, gave Providence's wholly owned subsidiary, EIRGAS Limited ('EIRGAS'), the right to acquire up to a 40% interest in the 100% operated Kinsale Head Area (comprising the Kinsale Head, South West Kinsale and Ballycotton gas fields) and up to a 40% interest in the 86.5% operated adjacent producing Seven Heads gas field (collectively referred to as the 'Kinsale Head Area assets'). The initial deposit (incl. interest) will now be refunded in full.

Under the terms of the Option Agreement, EIRGAS was to purchase its stake in the Kinsale Head Area assets on the same pro-rata terms by which PETRONAS acquired its stake from Marathon Oil Corporation in April 2009. That transaction had a total value of US$ 180 million, with an effective date of 1st January 2008. The Closing of this transaction was subject to regulatory approval with its financing being met from cash resources and banking facilities.

Commenting Mr O'Reilly, Chief Executive of Providence said:
'Due to a combination of updated financial data and increased funding requirements, it became clear that the transaction no longer represented the same opportunity for Providence shareholders. Whilst the long term economics of gas storage are compelling, and Kinsale represents a unique world class asset, the short term marked erosion in gas prices, combined with a different planned capital structure going forward, led us to withdraw.'

'Looking at our overall exploration and development portfolio, and noting the longer term development nature represented by this opportunity, the board took a view that it was in the best interests not to proceed as it no longer presented the same financial dynamics for shareholders.'

'Having invested time and resources in assessing the gas storage business model, we firmly believe in its merits and through our EIRGAS subsidiary, we will continue to exploit the gas storage opportunities in our Dragon Field and Kish Bank licence interests.'

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