Mixed fortunes in Falkland Islands oil exploration

Exploration group Falkland Oil & Gas – one of four UK companies drilling for oil and gas around the islands – saw its shares halve in value after a disappointing update on its operations in the South Atlantic.

Its AIM-listed shares fell to an all-time low of 32p after the company said that gas reservoirs it drilled were of poor quality and that the results indicated that there was only low permeability. It said it would plug and abandon its Scotia well.

The market had expected better news after encouraging results from Desire last week and news last month that Rockhopper will start pumping oil from a well north of the islands in 2017. Analysts at Merchant Securities said: “The immediate result is a disappointment as the well did not confirm the presence of oil or high quality reservoir.” In June FOGL, which is backed by US company Noble Energy and Italian utility Edison, announced a gas discovery but was not sure if it was commercial or not.

Oil & Gas Rig

Falkland Oil & Gas shares halved after an update on operations around the Falkland Islands.
Photograph: Gary Clement/Reuters

Sam Wahab, at Seymour Pierce, said that the much anticipated well results come as a disappointment for investors in the company, following its finding of gas at the Loligo prospect in September. Some analysts had questioned the chance of commercial success, particularly given the high costs of extraction and the fact that gas prices are currently depressed.

Despite the disappointing report Falklands chief executive, Tim Bushell, said: “During 2012 we have drilled two encouraging wells, both of which found hyrdro carbons and were completed safely and within budget. They reinforce our confidence in the potential of the basin.”

Oil exploration by British companies in the area has sparked anger in Argentina, which claims the islands as its own territory. It has called the drilling there ‘illicit’ and threatened legal action

Source: The Guardian, 27th November 2012

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