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All eyes on the Falklands

The Zebedee prospect in the North Falkland Basin kicks off a busy exploration programme for UK drillers in the region.
March 26, 2015

In a week or so, we should be privy to initial drill results from the Zebedee prospect in the North Falkland Basin (NFB), in which Rockhopper Exploration (RKH) holds a 24 per cent interest. Zebedee lies near to the Sea Lion discovery and, given the extensive seismic information now available, hopes are high. Premier Oil (PMO), which has a 36 per cent interest in Zebedee, is the operator of the site, and is leading the way on this year's drilling campaign in the region, along with US partner Noble Energy (NYSE:NBL).

Following a lengthy hiatus, the arrival of the drilling unit Eirik Raude earlier this month marked the start of a multi-well exploration campaign in the NFB that could potentially unlock 568m barrels - 157m of which would be net to Rockhopper (the prospective resource given is based on the mean P50, or 50 per cent, chance of success rate). In addition to Zebedee, drilling will take place at the Isobel Deep, Jayne East and Chatham prospects through to the end of August 2015. The good news for Rockhopper shareholders is that, although each well in the NFB will cost an estimated $50m, the company will only have to fork out around $25m in aggregate due to an existing farm-out agreement with Premier.

Further drilling will be undertaken by the Eirik Raude rig in prospects to the south of the islands for Noble and Falkland Oil and Gas (FOGL), in addition to subsequent appraisal work. Noble Energy's initial prospect has been named Humpback and forms part of a series of targets that could hold prospective resources of 1bn barrels, although anyone familiar with the Falklands' narrative won't be getting overly excited about such claims.

Aside from the busy exploration schedule, investors will be looking at Premier's efforts to commercialise the Sea Lion discovery. Weakening crude prices in late 2014 forced the operator to settle on a lower-cost, phased development plan. But project sanction is still a year away, and first oil isn't expected until 2019 at the earliest. Still, if this year's exploration programme was to prove successful, it would certainly improve the economics of the NFB, particularly if one or more prospects could eventually be tied in to Sea Lion.