Darwinian logic at Borders and Southern

Fluid analysis has revealed a relatively high liquid content, with initial reservoir engineering studies suggesting that 130m to 250m barrels of liquid could be recovered, with a mid case of 190m barrels. It’s early days, but initial production profiles have been considered, including Darwin East as a stand-alone development with production levels up to 28,300 barrels per day (bopd) and a combined Darwin East and West operation producing 56,600 bopd. Capital expenditure estimates for the stand-alone operation – including a 40 per cent contingency – would be $2.73bn if a floating production, storage and offloading (FPSO) unit is purchased, or $1.585bn if leased, with costs rising by around 38 per cent if a combined Darwin East/West option is pursued. The economic viability of the discovery was given more ballast through independent economic modelling, which showed that a 200m barrel development would be commercial with an oil price as low as $65/barrel.

This is undoubtedly good news for Borders and Southern, sending the shares up by as much as 18 per cent intraday. The group will now endeavour to prove up the recoverable volumes and flow-rates at its Darwin discovery via appraisal drilling, which the group reckons is relatively low-risk “due to the high confidence levels in the geophysical attributes.” Although the route through to commercialisation on Darwin obviously isn’t helped by ongoing ructions linked to Argentina’s claims to the Falklands, last year’s $180m farm-in agreement between Falkland Oil and Gas (FOGL) and Noble Energy (NYSE: NBL) certainly provided a positive beat for those operating in British territorial waters in the South Atlantic.