Falkland Islands Oil Could Triple U.K. Reserves
Jan 19, 2012 10:07 AM GMT
Thirty years after Margaret Thatcher
fought a 74-day war with Argentina over the Falkland Islands,
the prospect of an oil boom is reviving tensions.
Oil explorers are targeting 8.3 billion barrels in the
waters around the islands this year, three times the U.K.’s
reserves. Borders & Southern Petroleum Plc (BOR) will drill the
Stebbing prospect next month, one of three Falkland wells that
Morgan Stanley ranks among the world’s top 15 offshore prospects
this year. Meanwhile, Rockhopper Exploration Plc (RKH) is seeking $2
billion from a larger oil company to develop the Sea Lion field,
the islands’ first economically viable oil find.
“The area is underexplored and highly prospective,” said
New York-based Morgan Stanley analyst Evan Calio. “These could
be like the high-impact wells in Ghana and Brazil a few years
ago that opened up a whole host of basins.”
A major drilling success will further raise the political
temperature as Argentina maintains its claim over the U.K’s
South Atlantic territory, 300 miles (483 kilometers) from the
Latin American coast. President Cristina Fernandez de Kirchner
said Britain is taking her country’s resources, while Thatcher’s
successor David Cameron yesterday accused Argentina of a
“colonialist” attitude that didn’t account for islanders’ rights.
Cameron has approved contingency plans to bolster U.K.
troops on the islands, and Prince William, a search and rescue
pilot and the second in line to the British throne, may spend
six weeks there this year, the Times of London reported today.
“We want to have a full and productive relationship with
Argentina,” said Foreign Office spokeswoman Sophie Benger in an
e-mailed response to questions. “Whilst the sovereignty of the
Falklands is not up for negotiation, there is still much we can
The world’s largest oil companies like Exxon Mobil Corp.
and Royal Dutch Shell Plc face a dilemma: whether the potential
of a virgin basin outweighs the risk of a worsening
international dispute. While producers with interests in
Argentina, such as BP Plc, may be put off, others will want to
participate, said Tim Bushell, chief executive officer of
Falkland Oil & Gas Ltd. (FOGL), who’s looking for drilling partners.
“Big oil companies are used to dealing with political
risks, and bigger ones than some saber rattling by Argentina,”
Bushell said in a telephone interview, declining to name the
companies he’s talking to. “For every BP, there are other major
companies that don’t have an interest in Argentina.”
The Falkland Island government, which manages the
territory’s mineral rights for the 2,955 islanders, says the big
producers are interested and talking to the companies already
active in the region. Of the five U.K.-based explorers that have
drilled or plan wells, the largest, Rockhopper, has a market
value of 899 million pounds ($1.4 billion).
“The Falklands is at a stage where a big company can take
a large share in what could be a big oil province,” said
Stephen Luxton, the Falkland Islands’ director of mineral
resources. “There is an active program of marketing by the
companies here. There are discussions going on, though we can’t
Falkland Oil & Gas plans to drill the Loligo prospect later
this year, a well targeting 4.7 billion barrels of oil. Named
after a Patagonian squid, it’s the second-most prospective well
planned worldwide this year after one in Namibia, according to
Morgan Stanley. The company’s Darwin prospect will follow and
ranks sixth on the U.S. bank’s list.
Borders & Southern will start drilling the Darwin prospect
by the end of January, which seismic surveys suggest may hold as
much as 760 million barrels of oil and 3 trillion cubic feet of
gas. Stebbing, the target of the company’s second well, may hold
as much as 1.2 billion barrels.
Together, the four wells planned for the Falklands this
year are searching for about 8.3 billion barrels of oil. The
Jubilee field, which was discovered in 2007, propelled Ghana
into one of the world’s top 50 oil states. Brazil’s Lula field,
drilled in 2006, holds an estimated 6.5 billion barrels of oil
“There could be significant volumes down there and it
would open up a new hydrocarbon province,” Borders & Southern
CEO Howard Obee said in an interview. If the first two wells
are successful, “we’d like to do a big drilling program, not
only to appraise what we’d find but also drill up additional
prospects. To do that, we’d need quite a bit of money.”
While the company will probably be able to sell more shares
to determine the size of a discovery in this campaign, it may
have to sell stakes in prospects to develop them, said Tracy Mackenzie, an analyst at broker Brewin Dolphin in Edinburgh.
Borders & Southern holds a 100 percent interest in its fields.
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