Gotcha! – the Falkland Oilands revisited | FT Alphaville

Gotcha! – the Falkland Oilands revisited

Right, here’s something to strike fear into the hearts of those ‘sharks‘ hoarding oil off the coast of Great Britain.

The UK could be sitting on 60bn barrels of oil. Well, sort of.

From Wednesday’s Sun:

THE Falklands are on the brink of a massive oil boom that could boost Britain’s battered economy – 27 years after UK forces retook the islands from Argentina.

Margaret Thatcher was branded crazy when she sent a task force to kick out the South American invaders from the “worthless” lumps of land at a cost of 255 British lives.

But the damp, distant territory largely given over to sheep farming has now been dubbed Baa-rain after scientists estimated that up to 60 BILLION barrels of oil lie beneath its coastal waters.

Every drop will belong to the grateful Falkland Islanders, rescued by their mother country a generation ago.

But the fiercely patriotic population has vowed to repay its liberators when the massive revenues begin rolling in to the capital Port Stanley.   

Of course, the most remarkable fact in today’s exclusive, other than the 60bn barrels claim, is this:

Sky-high oil prices now make it economical to extract the black gold and have sparked a £327million surge of investment from City speculators in the past month.

Yep, £327m to fund drilling campaigns that may not yield any commercial discoveries.

Here’s a recent note from Richard Rose of Oriel Securities which puts things nicely into perspective:

North Falklands basin
Although the drilling campaign in the North Falklands in 1998 demonstrated a working hydrocarbon system, there is still considerable exploration risk not least source and migration over large areas of the basin.

Prospect size is also an issue. The majority of the prospects in the North Falklands basin are of the order of 100-250mmb. In our view, given the remoteness of the province and lack of supply infrastructure and despite favourable fiscal terms, we would be surprised if individual discoveries of less than 75mmb would be commercialised, although 2 or more in close proximity may be progressed as a joint development.

The chance of success on the prospects varies between 8-27%. Whilst the previous drilling programme partially allayed the source risk, we still see the basin as frontier and would view individual prospect success at less than 20%, even after taking account of positive seismic and CSEM indications.

South Falklands basin
There has been no drilling in the Southern Falklands basins and therefore source, reservoir presence and quality and integrity of the proposed trapping mechanisms (majority of prospects are stratigraphic) are all key risks.

However, considerable work has been undertaken by Falklands Oil & Gas, partner BHP and Borders & Southern to de-risk the prospect inventory ahead of drilling including detailed seismic AVO analysis and CSEM surveys.

We have capped the chance of success on individual prospects at 15% but highlight that the potential upside is an order of magnitude higher than those in the North Falklands. Pre-drill reserve estimates of more than 1.0bnboe may seem “blue sky”, but the Cretaceous fan plays being targeted on prospects like Loligo are similar in structure and size to discoveries such as Jubilee and Tweneboa in Ghana and others being pursued along the West African transform margin play.

Drilling in the northern basin is expected to start in February once the Ocean Guardian drilling rig, which departed from the Cromarty Firth in Scotland last week, arrives. Rigs to drill in the deeper and more inhospitable southern basin won’t become available until late 2010 or early 2011.

Only then will we know if there’s 60bn barrels of oil in the 200-mile oil exploration zone around the islands.

In the meantime, Sun readers know what to do:

Better send some troops there to protect it just in case Argentina invade again.



Related links:
Falkland Islands – a natural kingdom, approved by nature and enjoyed by man
British overseas territories – Wikipedia