The industry knows the Falkland Islands has hydrocarbons. But the underlying pressure of Argentine opposition, coupled with the ups and downs of the oil price, has prevented developments thus far. But there is a sense things are about to change for Falkland Islands oil exploration.
“I think the Falklands is about to get really exciting,” Borders and Southern Petroleum chief executive Harry Baker says. “It’s a consequence of the industry being short of projects.”
The company’s find, Darwin in the South Falklands Basin, was discovered in 2012. A number of global trends deterred big oil from pursuing deepwater plans at that time.
“But now, they’re very interested in deepwater exploration. And we are looking for a partner.”
There is a “hunger for projects, an appetite for resource”, Baker continues. “And there is plenty of resource down in the Falkland Islands, both in the north and the south.”
Borders has been clear that progress in the North Falklands Basin would be a point in the company’s favour.
Baker notes that Israel-headquartered Navitas Petroleum and London’s Rockhopper Exploration are “on the cusp” of reaching a final investment decision (FID) at Sea Lion, “which is huge for the Falkland Islands”. Rockhopper made the find in 2010, with Navitas joining in 2022.
Politicking
The Sea Lion partners are looking for financing, while Borders is seeking a partner. The major challenge is the politics of the area.
Baker acknowledges that Argentina’s claims to the Falklands (locally known as ‘las Islas Malvinas’) were the reason the projects have not yet been developed. “This needs a deep-pocketed partner who’s politically agnostic,” he notes.
But Argentina has committed to pursuing its claims peacefully, rather than through a repeat of its military efforts in the early 1980s.
“It’s disputed territory and Argentina can, and will likely, attempt to sanction any company involved in what it considers to be the development of its own resources,” explains Cavendish research director James Midgley. Cavendish covers Rockhopper.
Financing
Midgley notes that some lenders that have operations in Argentina may not want to take the risk of involvement with the Falklands.
“That narrows the pool of capital. [But] there are absolutely, many people who will finance those developments, as long as the returns are sufficient. With a smaller pool of capital however, the cost of finance could be more expensive.”
Borders’ Baker notes the appointment of “one of the biggest and most active investment banks in this space” working with the company on a no-win, no-fee basis as evidence of the Falklands’ appeal.
“That they took us on for no monthly retainer is an indication that they can sell it — and sell it quickly.”
To progress the Darwin development, Borders needs to bring in a partner to fund the next stage of work. The company’s three production licences in the basin will run until the end of 2026, following a 2024 extension.
“How do we move this forward? We are looking to bring in a partner, and we hope to have some news within a reasonable time scale,” says Baker.
Those political challenges throw up some issues around working in the area. Cavendish’s Midgley notes that during previous drilling, “Argentina demanded that all boats travelling to the Falklands gained permission first. This made logistical operations more challenging and expensive.”
Working
Baker is confident that more work in the South Atlantic opens up opportunities for Falkland Islands oil exploration. “It’s now 12 days sailing time from Namibia to where we are. There are rigs coming down to Uruguay.”
Brazil may also see opportunities to export some of its knowledge and services from its own offshore resources to the Falklands.
“The Falkland Islands is remote,” Baker continues. “But Navitas and Rockhopper are making it less remote.”
Borders has pitched a phased development to develop Darwin’s 462 million barrels of recoverable gas condensate, at 46-49 degrees API. The company’s subsurface manager Bruce Farrer said a first phase would involve just three wells.
“It would be two producers and one gas injector. Now, that means we need a lot less kit because we’re only drilling a few wells,” he explains. “It’s just a small drilling campaign to drill those wells out.”
Farrer compared the Darwin East find to the “low-hanging fruit type structures drilled in the North Sea in the early days — the Brent type structures. Really obvious, really easy to see.”
The company took samples from the reservoir during formation testing, with samples analysed by Expro and Schlumberger.
“If we go from the western end of Darwin West to the eastern end of Darwin East, that’s about the distance from Heathrow Airport to Hyde Park Corner. It’s about 17 km.”
Borders has guided development spending of $440m with $300m of drilling costs. The company has 100% of the project, but for a company with a market cap of around £57m, it clearly needs help.
The phased development, with an FPSO, would involve production of around 26,000 barrels per day. The plan has a breakeven price of around $40 per barrel. At $60 per barrel, it would recover costs within two years. At $90 per barrel, this would fall to one year.
Going beyond
The plan for the first phase would be to concentrate on Darwin East. But there is scope for growth in Falkland Islands oil exploration.
“Our story is in, around and, crucially, underneath Darwin,” Baker says. “There’s another 1.3 billion barrels in lookalike structures.”
The next step beyond the Darwin find are the Sullivan and Stokes targets. The latter is thought to be around 700 metres below the base of the Darwin East well.
“Our objective, when we come back to drill either on Darwin East or on Darwin West, we’ll deepen the well to tag that interval,” Farrar explains. Stokes may hold another 140m barrels while Sullivan may have nearly 500m barrels of condensate.
“We suddenly start ramping up those volumes pretty quickly and quite easily, just by drilling on the Darwin field.” Beyond Darwin’s barrels, Borders has identified more than 20 prospects, with a P50 resource of 8.4bn barrels.
A recent note from Zeus’ Daniel Slater pinpointed the first step would be an FID at Sea Lion for Navitas and Rockhopper. This would then fuel interest in Borders’ farm-out process. Once this is agreed, Slater predicted drilling would come within 12-18 months.
Baker is as optimistic as explorers must be. “We know the quality of our project and I think the Falklands is just about to become relevant again.”
Given the increasing focus of major companies on available resources around the world, he may just be right.
