Providence cuts jobs and directors while waiting on Chinese loan
- Business & Finance
Irish oil and gas exploration company Providence Resources has decided to lay off all of its technical and support staff and downsize its board. The company is still waiting on the Chinese loan to cover the costs of a survey and pre-drill well consenting for the Barryroe prospect offshore Ireland.
Standard Exploration Licence (SEL) 1/11, which contains the Barryroe oil accumulation, is operated by EXOLA (40%), a wholly-owned Providence subsidiary, on behalf of its partners, APEC Energy Enterprises Limited and Lansdowne Celtic Sea Limited (10%).
The area lies in c. 100-meter water depth in the North Celtic Sea Basin and is located c. 50 km off the south coast of Ireland.
On June 5, 2019, the company announced that APEC, EXOLA and Lansdowne had agreed certain amendments to the farm-out agreement for the Barryroe Project, including a revised backstop date with APEC for receipt of the $9 million loan advance to June 14, 2019, which was subsequently extended through various extensions to August 2, 2019.
Extension of backstop date
Providence said on Monday, August 5 that, as at close of business on August 2, 2019, no funds had been received in the company’s account as the payment date is still pending due to final processing by HSBC.
Accordingly, to facilitate this, the Barryroe Partners have agreed to a further backstop extension of on or before August 12, 2019.
Site-Survey consent pending
The company is still waiting for consent to conduct a site survey over Barryroe. As of August 2, 2019, the application is still pending with Ireland’s Department of Communications, Climate Action & Environment.
The Board said it believes that the carrying out of the site survey in the immediate term is essential to expedite the forward drilling plans for the Barryroe Project, which will be managed by a dedicated project management team.
Re-engineering of Providence’s business
On June 28, 2019, the company announced that the Board had carried out a strategic review of the company’s operations to ensure that its business model continues to be ‘fit for purpose’. As a result, the Board concluded that there was an immediate requirement to re-engineer Providence’s business model to reflect the changes evident in its operating environment.
This re-engineering reflected a number of material factors, including the company’s success in farming out the majority of its portfolio, which has led to the transfer of operatorship in most of the company’s key assets; and a substantially reduced technical role for the company.
It also included the fact that the company is not a revenue generating company. Namely, the company’s past two years of working capital have been financed solely through the completion of farm-out deals with third parties.
Another factor was the inability to pursue international expansion.
As a result, 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, the company will vacate its current Dublin office in early 4Q 2019 (at the expiry of the current lease) and re-locate to smaller serviced facility in Dublin.
In addition, all technical and support staff will be made redundant and the size and composition of the Board of Directors will be reduced; and the use of various services providers and advisors will be reduced.
The company projects that, when implemented, the annual cost base of the business (excluding CAPEX) will be reduced to $1.9 million from $5.3 million currently, representing a c.65% reduction in total annualized costs.
As at August 2, 2019, the company had unaudited cash in bank of approximately $1.45 million. The company has received further assurances that the $10 million loan advances due under the updated farm-out agreement are in the process of being paid.
However, the Board advised 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.
As part of the re-engineering process, the company said it is an opportune time to reduce the size and composition of the Board consistent with Providence’s business needs.
Providence said that John O’Sullivan, Technical Director, would step down with immediate effect and Lex Gamble, Non-Executive Director, will step down on December 31, 2019.
Furthermore, James McCarthy, Non-executive Director, will not seek re-election at the upcoming 2019 Annual General Meeting in September 2019 and Philip O’Quigley, Non-executive Director, will not seek re-election at the 2020 AGM.
The 2019 AGM will take place on Thursday, September 12, 2019 at 11.00am
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