Britain could be about to strike oil, again. Not in the North Sea this time but around the Falkland Islands in the South Atlantic. Desire Petroleum, Rockhopper Exploration, Falklands Oil & Gas (in partnership with BHP Billiton) and Borders & Southern have between them raised £170m (US$272m) to begin drilling later this month according to the Financial Times. Desire has leased the drill ship Ocean Guardian to build on work done in 1998 in which six wells were drilled in the North Falklands Basin and five of them yielded oil and gas, but at prevailing oil prices were not considered economically viable. Analysts say any discoveries now could be commercially viable at about $40 a barrel.
Needless to say Argentina is hopping mad about the news, Reuters reported that Argentina protested to Britain’s embassy in Buenos Aires this week over the plans to begin offshore oil exploration in the disputed Falkland Islands, which the two countries went to war over in 1982. Nearly 1000 people were killed in the Falklands war and Argentina still lays claim to the energy rich islands even though they have been under British control since 1833.
According to an article last year, drilling costs could be US$10m per hole so these small junior exploration companies are going to need big partners (like BHP) or deep pockets to fully explore the region. The prospects look positive though; testing a well drilled by Shell ten years earlier, British firm Rockhopper Exploration discovered a massive natural gas deposit one that could be as big as 7.9 trillion cubic feet. But the problem is with no nearby market and the cost of laying a pipeline or building an LNG plant being immense the natural gas is of limited immediate value.
There are two areas being explored at the moment the North and South Basins. Rockhopper made its gas discovery in the North, where the water is shallow at 100m-600m (300-2000ft) and the drilling conditions relatively benign. The South Basin, where fellow explorers Falkland Oil & Gas and Borders & Southern are active, is another matter. The water is up to 1,200m (4000ft) deep and the drilling conditions far trickier according to a report in Money Week. With Britain’s experience in the North Sea such depths would not be a major hindrance to developing any finds but they do raise the cost of exploration and development even before overcoming the logistical challenge of operating in the South Atlantic so far from major support services. Suppliers to the offshore oil industry will be watching developments closely; development would bring rich rewards for those with the expertise to meet the challenge.