Shares in Falkland Islands oil and gas explorer Borders & Southern Petroleum (LON:BOR) were up 2.6% to 68p in trading this morning on news that it had put pen to paper on a contract with Ocean Rig UDW Inc. for the provision of mobile drilling rig services using the Eirik Raude drilling unit, a dynamically positioned, harsh environment semi-submersible. On completion of its current contract in West Africa in October 2011, the rig will be mobilised to the Falklands to commence a two well drilling programme. The wells on Borders’ Darwin and Stebbing prospects are currently estimated to take approximately 45 days each. The contract allows for up to three option wells.
Within the last year, Borders has appointed a drilling manager for the campaign and has contracted AGR Peak Well Management to perform well engineering, procurement, service contracting and operations supervision. Initial well designs for Darwin and Stebbing are already well advanced and the company said it expects to order subsea wellhead systems and casing strings shortly. Detailed well planning and the contracting of third party services will also commence shortly.
Borders’ chief executive Howard Obee, said: “We are delighted to have signed this contract. It represents a significant milestone for the company and is the culmination of an intense period of technical and contractual effort. The Eirik Raude is a high specification, harsh environment rig that is ideally suited for our work programme.”
Since raising $184m in a share placing in November 2009, Borders has struggled to get its hands on a rig suitable for drilling in the deeper water of the Southern Falklands Basin. In turn, the company has always been keen to point out that the success or failure of operators in the North Basin, including Rockhopper Exploration (LON:RKH) and Desire Petroleum (LON:DES) , has little bearing on the potential for its own drilling programme because of different types of geology involved. However, the unsuccessful Toroa well drilled by BHP Billiton (LON:BLT) and Falkland Oil & Gas (LON:FOGL) in the South Basin in July this year…
From Cannacord
"...........................The overall structure is large and the seismic anomaly covers 26km2, so the company believes Darwin East is likely to contain significant volumes.
The well will be shortly plugged and abandoned and the rig will then move to the Stebbing location for the second well in the programme, which we expect to take 45- 60 days to drill.
The discovery of hydrocarbons to the south of the Falkland Islands is a very positive step. However, there is clearly much to do to understand the liquids content of the samples and this find, and then to extrapoloate that information to the other nearby prospects and leads. That process is likely to take several months. In the meantime, the market can only speculate on the possibility of Darwin being a commercial discovery. What is certain, is that the company will seek to expand its exploration campaign (perhaps this year, but certainly next) and will likely need to appraise the Darwin East discovery. That would imply additional financing will be required. Investors may want to wait for that, or at least greater clarity on the find.
Valuation at present is nearly impossible. However, given the potential of Darwin and the remaining portfolio, we believe a revised and increased target price of 150p/share is reasonable (previously 100p/share). That equates to around 225 mmbbls contingent liquids resources based on the current market rating for Rockhopper (US$4.5/bbl)."
