Oil & Gas - Falkland Islands - Southern basin success key for UK firms -analyst

By James Fowler?/?Business News Americas

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The high costs involved in the drilling campaign focused on the South Falkland basin increase the pressure on UK firms Borders and Southern (AIM: BOR) and Falkland Oil and Gas (AIM: FOGL) to deliver at least some form of success, according Ian McLelland, an analyst at corporate services group Edison Investment Research.

"The costs of these wells, including mobilization and de-mobilization, are probably going to be approaching US$300mn in total. If all the wells planned for this year come in dry, and they come away with nothing, there has to be a point where you say no more for now," McLelland told BNamericas.

Borders and Southern drilled the first well in the present campaign at the Darwin east prospect on its PL018 license earlier this month, becoming the fourth UK firm to spud wells in the ongoing Falklands exploration campaign.

The firm will drill a second well at the Stebbing prospect before passing the Liev Erickson rig contracted from Ocean Rig UDW over to fellow British explorer Falkland Oil and Gas during 2Q12.

Borders' best case scenario estimate of recoverable reserves at the two prospects is in excess of 2Bboe.

FOGL has already drilled one well in the present campaign at the Toroa well on its northern license area, which was abandoned in 2010 due to heavy water shows.

The firm's first well will target the Loligo prospect, currently seen as the biggest prospect off the coast of the Falklands with estimated resources of 4.7Bboe.

McLelland believes further prospects of similar size could be found elsewhere in the Southern basin through further investigation.

"Loligo is only one of many large structures in the southern basin. We don't actually have sight of how many there are, because both Borders and Southern and FOGL have really concentrated seismic acquisition only on the assets they want to drill. However, we are under the impression that there are other very interesting, very large structures that they want to be able to try and target," McLelland said.

Most of the wells drilled in the present campaign have so far been focused on the northern Falkland basin. Interest in the campaign remains high following Rockhopper Exploration (AIM: RKH) declaration of commercially viable reserves at the Sea Lion field on license PL032.

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Source: http://www.bnamericas.com/news/oilandgas/southern-basin-success-key-for-uk-firms-analyst

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