Hopes that the Falkland Islands could become a major new oil province were dented yesterday.
Desire Petroleum said it had not made an oil discovery, days after saying it believed it had.
The company said yesterday that additional analysis of data from the Rachel North well did not support initial indications of an oil discovery, almost halving the value of its shares.
Sand samples revealed fluid in the well was just water.
Success at Rachel North would have been the second oil discovery in Falklands waters, following Rockhopper’s success at its Sea Lion prospect in May.
Evolution analyst David Farrell said: “This is a major blow to Desire and the prospectivity of the North Falkland Basin.”
But Gavin Farquhar, a partner with law firm McGrigors, said: “The reaction to this disappointing news from Desire epitomises the rollercoaster nature of the Falklands exploration campaign.
“An even-handed view of the campaign to date would balance the Desire announcement on the Rachel North well with the oil shows there have been and Rockhopper’s Sea Lion discovery. Disappointments are inevitable with the majority of the wells drilled in what is a frontier territory.
“I don’t subscribe to the view that this undermines the prospects of the Falklands being viable as an oil-producing region. One has to bear in mind the further exploration work to be done imminently in the North Falkland Basin and the other vast areas around the islands which are licensed for exploration in the medium term.”
Desire’s disappointing well is the latest setback to temper excitement generated by the exploration of the south Atlantic.
The most recent blow came on Friday when leaked US documents showed ExxonMobil, the world’s largest oil company not owned by a government, said oil resources in the islands were insufficient to be profitable.
One of the most talked-about stocks on internet message boards, Desire’s share price is hugely volatile: soaring as much as 114% in one day in October without the company issuing any news.
An analyst who did not want to be named said: “They (Desire) were obviously under a lot of pressure from the stock market to announce something last week and they hadn’t finished acquiring the data.
“In a normal cause of events you wouldn’t put a press release out until you finished doing all the data acquisition.”
Shares in Desire, which had risen 26% since it announced the oil find on Thursday, plunged more than 49.5% to 67.25p.
Desire said the Rachel North well would now be plugged and abandoned and the rig would be moved to drill its Dawn/Jacinta prospect, after which it would likely be used to drill another well on its acreage.
The firm said it had cash of £75million, which would be enough to fund two further wells and acquire seismic data to better understand the geology around the Rachel prospect that led to oil shows in the well.
Chairman Stephen Phipps said: “Despite this setback, the presence of hydrocarbons and good reservoir development have been identified in a number of the Rachel fan sands and we therefore continue to believe in the prospectivity of the east flank play fairway for future oil discoveries.”