Exploration company Providence (via its subsidiary Eirgas) has exercised its option to acquire a 40% stake in a group of assets centred on the Kinsale Head gas field from Labuan Energy, a subsidiary of Petronas.

Eirgas is a special purpose vehicle established by Providence to invest in gas production, storage and trading opportunities offshore Ireland and in the United Kingdom.

As part of the same transaction, Eirgas has also exercised the option to acquire a 40% interest in the 86.5% operated adjacent producing Seven Heads gas field.

Eirgas will pay between $35m (€24m) and $40m (€27.4m) to Petronas for the remaining reserves in Kinsale and Seven Heads as well as a gas storage business at SW Kinsale.

"Apart from the existing reserves and gas storage business, the real upside of the deal should come through the expansion of the gas storage business," Providence said today.

"This could involve third-party tie-in of gas reserves when Kinsale is depleted and/or expansion of additional gas storage capacity through the development of suitable reservoirs such as the depleted Ballycotton field, part of the Kinsale Head complex.

"With both Ireland and the UK very short of gas storage, the acquisition represents a major business opportunity."