I have been quietly watching the Falkland Islands scene for a fair length of time and wrote about the first exploration programme 10 years ago. It was a drilling campaign that various industry rune readers have criticised over the years. I’m one of them.
It seemed to be hastily put together and with insufficient attention given to target selection. And, having drilled their handful of wells, the majors scarpered pretty darned fast, even though hydrocarbons were encountered.
In Shell’s case, one of its wells delivered oil to surface. That was an amazing achievement. But it was quickly buried.
Of course, its campaign was conducted in a different oil price climate – the late-1997 through 1999 slump was starting to bite and the $10 barrel was staring the petroleum industry in the face.
Today, we have $100 oil and, in spite of the huge level of inflation that has started to haunt, the sector is immeasurably better placed to spend money today than 10 years ago.
Actually, the majors have been rolling in cash for at least the last five years. Whine they may, but the massive level of share buy-backs tells its own story. Someone said to me the other day that the majors are dying – but they’re making a helluva lot of noise and mess as they go.
I was at a closed-doors cabal a few weeks ago where the high-level audience was told among many other things that the majors now directly own/control only 5% of known global oil resources. OK, they access to a lot more, but national oil corporations rule the roost – set the rules.
So, given that British Geological Survey has never given up on its message that the Falklands shelf possesses among the finest “source” rocks for hydrocarbons anywhere on the planet, it seems daft that the majors have basically given this British South Atlantic possession the body swerve. Oil was back over $20 a barrel by September, 1999, and has been on the rise ever since. That is plenty of reason as to why companies like Shell should not have dumped the Falklands the way they did.
Basically, they left one cash-strapped independent, Desire Petroleum, to carry on scratching away, though it was later joined by new-generation minnows Falklands Oil & Gas and Rockhopper (see Page 3 for news story).
Desire never gave up and, in their different way, FOGL and Rockhopper have been equally persistent.
I guess I’m baffled as to how Desire survived, especially after its ill-judged Iberian foray. Now, I happen to be one of many people who bought a few Desire shares at the height of the 1998 action. I shelled out six quid or so a share, as the price was falling back.
Problem is that the price just went on falling, and falling and falling, until it was just a few coppers. And then it seemed to recover to 20-something pence for ages. There was zero point in getting rid of what I had – it would have cost more to frame the certificate for the privy wall than I would have got for selling them.
Anyway, somehow Desire survived, moreover it pressed on maturing key targets on its acreage. FOGL and Rockhopper got on with their programmes and, for example, controlled source electromagnetic survey techniques were employed to reinforce data garnered from seismic survey.
Perhaps the first really big signal that they really were on to something worth a really close look was when FOGL enticed Australian minerals and energy giant BHP into a farm-in agreement. That was October, 2007. Just a month later, BHP raised its stake and committed to a two-well programme in the South Falklands Basin, which has never ever been drilled. This is a telling manoeuvre, in my opinion.
The next big signal happened just a few days ago. Desire’s shares were suspended pending an announcement. Someone knew something on the outside as the company’s share price had been creeping up prior to the February 25 actions.
The statement was brief. It said Desire had accepted the terms of an offer from a “significant party” to farm-in to three of the 18 exploration prospects identified in the North Falkland Basin.
The company talked of two exploration wells at no cost to itself.
It went on to say: “At current rig rates, in addition to the two wells above, Desire has sufficient resources to be able to drill two wells for its own account in the North Falkland Basin.
“Thus, in combination with the two-well commitment entered into by BHP Billiton south of the Falkland Islands, there is now the potential to hire a rig for a minimum six-well drilling programme, thus defraying mobilisation/demobilisation costs for all parties.”
Fantastic news – maybe drilling will start next year?
But why, oh why did the majors leave the Falklands push to just three small companies? Yes, I know it is a classic tactic, but misguided in today’s marketplace where NOCs are stalking the planet, mopping up opportunities and being prepared to pay a premium.
Of course, we don’t yet know which company has linked arms with Desire. While it is probably western and likely to be European, it might not be.
One thing the British Government must on no account forget is that, if the Falkland Islands come anywhere near the 60billion barrels potential that has been talked about, then it must not simply be given away – blown in the same manner as the North Sea.
And I’d better go find that shares certificate.