What is it about oil & gas explorers in the Falkland Islands that so captures the imagination of investors? Last week, the share price of
The hope was that Darwin, a deepwater target in the southern basin, could contain as much as 760m barrels of oil. In the event, Borders' initial drilling turned up a 177 metre interval of gas condensate - with no details given as to the volume of the discovery, nor the proportion of gas to liquids. The share price slumped - gas in such a remote location would be difficult to commercialise, especially given the political tensions with Argentina.
The trigger for the price action in both Rockhopper and Desire was the publication of separate competent persons reports (CPR). These are part of the process of turning a geological resource into a commercially viable reserve. A CPR by consultants Gaffney, Cline & Associates attributed a potentially recoverable net resource of 355.6m barrels of oil at the Sea Lion disovery to Rockhopper, with a 90 per cent chance of being successfully developed. But some analysts - most notably Goldman Sachs - had set their valuations on slightly higher net estimates.
A Senergy CPR on Desire's 40 per cent stake in one of the Sea Lion discoveries, pointed to a contingent resource of 85m barrels of oil, in addition to 178bn cubic feet of gas. Oriel Securities attributes a resource rating of 107p a share to Desire (versus a share price of 28p), which could underpin a farm-out valuation of 45p.
The initial results from Darwin do at least confirm the presence of hydrocarbon-bearing structures within the South Falklands Basin, which provides a positive beat for UK explorers in the region - including our preferred southern basin play,