Specifically, today Providence revealed that the Drombeg prospect, the second and final target in its exploration plan, has been found to be water bearing, following a similarly disappointing result for the well’s Druid exploration prospect. Following these findings, the well will now be being plugged and abandoned.

However, despite these disappointing results, management remains upbeat about the future. “Frontier exploration requires perseverance and we look forward to seeing the outcome of exploration wells planned for acreage proximate to FEL 2/14, which will test plays similar to Diablo and to those which have proved to be successful in the conjugate Flemish Pass Basin, offshore Canada,” CEO Tony O’Reilly said in a statement alongside today’s update. 

Further, according to O’Reilly, as the company had farmed out around half of its exposure to these prospects, it remains “well funded for our forward drilling operations offshore Ireland.” The next target is the Barryroe oil field where Providence is the operator of the prospect with an 80% share. 

Disappointing news 

Today’s news from Providence is disappointing for shareholders, but it’s not the end of the line for the oil minnow. Oil & gas exploration is a high risk, high reward business, where companies with the most diversified portfolios usually come out on top. Providence’s management realises this and has sought to reduce risk by acquiring other exploration licences. 

The company’s Barryroe prospect has seen it recently being granted a two-year extension to its existing exploration licence by the Minister for Communications, Climate Action & Environment of Ireland. Providence is in discussion with a number of parties regarding farm-out agreements for Barryroe to help push the exploration programme forward and achieve first oil. But as with all projects like this, it’s almost impossible to put a time frame on when the company will achieve first oil from Barryroe. 

Time is running out 

After the two latest drilling failures, it looks as if Providence might need to sign a farm out for Barryroe as soon as possible. At the end of 2016, the firm reported a cash balance of €31m (£28m), after raising £53m in June. For the year, the company accumulated losses of €20.5m. 

While it is true that Providence owns an attractive set of assets, which could prove to be lucrative for the firm, exploration activities are expensive, and without cash to keep the lights on, Providence might struggle to unlock value. 

Is it time to catch this falling knife today? For risk-averse investors the answer looks to be a firm ‘no’ as Providence is still in its early stages and there’s plenty more that could go wrong for the company before it’s able to generate revenue. On the other hand, high-risk investors might be attracted to the firm’s portfolio of assets offshore Ireland, some of which might yet yield results. 

The post Is this former market darling a falling knife to catch after dropping 35% today? appeared first on The Motley Fool UK.

It stated that the company’s offshore Ireland operations have continued to progress. The well penetrating the Paleocene Druid prospect within the pre-drill depth prognosis was safely drilled to its section target depth. However, preliminary analysis indicates that the Druid prospect comprises a porous water-bearing reservoir. This means that the company will now press ahead with an assessment of the deeper Lower Cretaceous Drombeg exploration target. It is situated around 2km beneath Druid, and has a resource potential of around 2m barrels of oil versus Druid’s 3m.

Looking ahead

Clearly, Providence Resources faces a more difficult future after its update. Investors are likely to remain disappointed with the company’s progress regarding the Druid prospect in the short run. This means that there could be further share price falls ahead. That’s particularly the case if its update regarding the Drombeg prospect fails to be positive.

Of course, oil and gas exploration companies such as Providence Resources are by their very nature highly volatile and risky entities. Their share price performance is largely dependent on news flow and the success of their drilling operations. In some cases, this can lead to significant share price growth. However, negative news tends to be received extremely poorly by investors due to smaller exploration companies lacking the diversity of their larger peers.

Sector appeal

Despite today’s share price fall, Providence Resources is still down only 12% in the last year. This is a relatively positive performance compared to some of its sector peers. Clearly, the outlook for the industry is challenging, and a low oil price may remain in the short run.

In the long run though, exploration companies such as Providence Resources and Rockhopper (LSE: RKH) could deliver improved performance. Both stocks could benefit from a rising oil price, with demand from the emerging world in particular expected to increase. At the same time, a reduction in global supply from OPEC and non-OPEC countries may lead to a fall in the supply surplus which has been present in recent years. This may lead to higher industry-wide profits and higher valuations.

Stock potential

Of course, Providence Resources and Rockhopper remain lossmaking at the present time. In the case of Rockhopper though, it has built a range of assets in numerous territories which means that its asset base may be less risky than those of some of its sector peers. Furthermore, its production volumes could increase in future and allow it to directly benefit in a potentially higher-oil-price environment.

With both stocks being relatively small, they are of a high-risk nature. Therefore, they may remain highly volatile in future and may only be worthy of consideration alongside larger, more financially stable, sector peers within a portfolio. However, with high potential rewards, they could be worthy of a closer look for less risk-averse investors.

The post Providence Resources plc slumps 40% on disappointing update appeared first on The Motley Fool UK.

Three of today’s biggest fallers are banknote printer De La Rue (LSE: DLAR), iodine producer Iofina (LSE: IOF) and Irish oiler Providence Resources (LSE: PVR).

De La Rue

De La Rue’s shares fell by 9% to 500p on Wednesday morning, after the firm cut its dividend by 41% to 25p. The firm’s reported profits fell by 35% to £38.9m last year, while underlying earnings per share dropped 25% to 45.3p.

The problem seems to be that intense competition is driving down profit margins on bank note printing. De La Rue managed to achieve a 5% increase in print volumes last year, but only through “a tactical approach” to pricing. In other words, the firm lowered its prices to win more business.

However, today’s fall could mark the low point for De La Rue. It’s possible that the firm’s new chief executive, Martin Sutherland, is keen to get the bad news out of the way as quickly as possible.

What’s more, the firm’s shares now look quite reasonably priced. Based on today’s results, De La Rue is trading on an underlying P/E of 11.0 and a dividend yield of 5%. A rebound is possible.

Providence Resources

Irish oil explorer Providence struck it lucky with the Barryroe discovery in 2012, which has a mean oil-in-place estimate of around 1.8 billion barrels.

The problem is that Providence has been unable to secure a farm-out deal to finance the development of Barryroe.

Providence shares fell by another 9% this morning, after the firm admitted that it was still no closer to its goal. Although a provisional deal was agreed in February, it was dependent on the unidentified partner securing financing. This still hasn’t happened.

Providence shares have now fallen from a peak of almost 700p to just 25p. On the face of it, the shares offer value, but this company could also be a value trap.

At today’s oil price, Barryroe isn’t as attractive as it used to be. The firm has $24m of debt due for repayment over the next 12 months, and cash is tight, despite raising $28m through a placing earlier this year.

Providence shares are effectively a gamble on a farm-out deal. The firm has already failed to deliver for the last three years. I’d stay clear.

Iofina

Shares in iodine producer Iofina fell this morning, despite the firm reporting record revenue of $25.9m for 2014. One problem was that the firm also reported a record loss of $6.6m.

According to Iofina, iodine prices fell sharply last year. This meant that while Iofina’s production rose by 92% to 327.7 tonnes, revenue only rose by 35%. Iofina ended last year with just $7.0m in cash and $18.8m of debt, of which $15m is due for repayment in May 2017.

In today’s results, the firm said that earnings before interest, tax, depreciation and amortisation (EBITDA) were positive during the first quarter of 2015. However, it’s not clear to me whether this will translate into an operating profit, unless iodine prices improve.

The problems experienced by Iofina and Providence highlight how small commodity stocks can be the victims of market circumstances, even with good assets.

The post Why Are De La Rue plc, Iofina plc And Providence Resources PLC Tumbling Today? appeared first on The Motley Fool UK.