The most remote part of the Atlantic Frontier, the Falkland Islands, apparently has to potential to become a major new player in the quest for new oil and gas resources.
But achieving that objective could turn out to be a longer haul that many expect, given the results of exploration to date. Yes, the pioneering Sea Lion (Rockhopper, Premier) oil development is essentially in the bag and due onstream in 2017, but that is all at this time.
While Border & Southern’s Darwin gas-condensate discovery to the south-east of the islands will probably prove up to be commercial, and so too the apparently vast Loligo (Falklands Oil & Gas, Edison) gas find subject to a lot more work; the result for Scotia-1 (Falklands O&G, Noble Energy) announced on November 27 was disappointing, though oil and gas were encountered.
Nonetheless, it is possible that a trio of projects might be under way by 2016 – Sea Lion just a year off production and Darwin and Loligo in the very early stages of project evaluation.
This poses a huge challenge to the Falkland Islands Government, which says it is working assiduously to ensure that the oil adventure is a successful one for what remains a UK possession, though Argentina wishes otherwise.
“The fact that there is going to be oil production offshore the Falklands from 2017 is going to be a game changer, a huge change from our current financial status to one where we’re perhaps receiving £200million a year (in revenues),” said Dr Barry Ellsby, a Member of the island group’s eight-strong Legislative Assembly and a doctor by profession.
“We’re talking about an order of magnitude that’s going to deliver a huge increase in the amount of money that the Falklands have to deal with.
“And the question; is this going to be of huge benefit for the islands or, if not managed well, could it prove a disaster? It beholds us all to ensure we make the right decisions.”
“How is a small community of about 3,000 people going to manage this relatively immense wealth that will be coming our way without destroying the very basis of what is good about the Falklands.
“All MLAs are very aware of that. We’re trying to learn from other countries that have oil, such as Norway, Canada, the UK (especially Shetland) to try to learn lessons and not run into the same sorts of problems as they might have had.
“But we’ve not been able to find many situations similar to the Falklands where you have a very remote community, or a population of less than 3,000 that’s very well developed with good governance already.”
Dick Sawle, another MLA and who has huge experience of the Falklands fisheries said that the Falklands had already shown its ability to handle a large resource . . . some 250,000 tonnes a year.
“Whilst the fishing industry is much smaller than the oil industry, nevertheless, that has given us a lot of knowledge and expertise in dealing with probably a far larger population at sea extracting resource. So in a sense we’ve already seen the impact of that,” said Sawle.
“The Rockhopper impact study points to up to around 90 people onshore, potentially (for Sea Lion). As for people moving through, we’ve had that situation for many years in fishing. Much of what you see in the Falklands today is built on fish.”
It was four to five years ago that the prior Falklands Assembly started work on an economic development strategy and that is being continued by the present one. According to Sawle, this was done in partnership with the private sector.
“And the reason why it was a very important document was because it was realised that what the Falklands had was unsustainable for the future. This is because we have an ageing population,” he told Energy.
“The economic development strategy said that the Falklands, the cost of running government . . . the country . . . is always going to increase. The economy of the Falklands is relatively stagnant, the population is ageing, and the number of workers per retiree is falling. The more recent census has borne out that that is still the case.”
Sawle said oil and gas came on to the agenda “at the very last minute”.
But, while it was written into the economic development strategy, little weight was given to oil and gas “because it would have been wrong to put all our eggs in one basket”.
Now oil is a reality, what next?
Sawle and Ellsby argue that, while even just one project has the power to change the Falklands economy and society significantly, the challenges are similar to the early years of the fishery.
“The same questions remain; ownership; how we’re going to use it to the best benefit of the community and how we’re going to future-proof the community,” said Ellsby.
“What are we going to do about a sovereign wealth fund? It’s all these discussions that we have to have. And then take the community with us so the decisions we make are approved by the community.”
Not counting the abortive late 1990s exploration campaign, so far, the engagements with Big Oil have been with small companies with strong Falklands links.
Premier started to change that; Edison/Noble change that further. If there are further significant discoveries, this could attract the really large companies, perhaps through acquisition of one or more current players. How do the MLAs think they’re going to be able to cope?
Ellsby: “None of the big companies are looking to come here. If any such company decided to farm-in with one of the existing companies they would have to secure our agreement. So we have the ability to determine who will farm-in.”
“That’s why it’s essential to have a review of all our legislation and to do what’s necessary to ensure that we are able to cope, no matter who takes over companies.
“Multi-nationals are much harder to deal with than small companies like Rockhopper. But I don’t think that’s going to be a problem.”
Sawle added: “That’s why we need the legislative framework and regulatory framework that can cope; and that’s what we’re working on at the moment. There was no point in spending a huge amount of money, time and effort doing that before we knew there was going to be any oil.”