The Falklands seem to be all action these days – at least as far as UK oil and gas explorers are concerned. There's Falkland Oil & Gas and Borders & Southern Petroleum in the southern basin, and Rockhopper Exploration and Desire in the northern basin, so quite a lot of choice for the investor.
Until earlier this year, things looked rather boring for investors. The development of the basin has been a sort of two steps forward, one step back business. Back in 1998, Shell and Amerada Hess drilled the North Basin, with relative success – out of six wells, five had oil shows, and one also had gas. That's not a bad success ratio. But at an oil price below twenty bucks a barrel, it just wasn't commercially viable to develop the field – end of story for the time being.
Now, of course, with the oil price trading above $60 a barrel, things look different. Desire actually raised money back in 2005 to start a further programme of drilling. So that was a step forward – but it's not been able to get its hand on a rig till this year. One of the big issues in exploring the Falklands basin is that it's incredibly remote – two weeks to a month transit time from most of the other major oil exploration sites, depending on the type of rig used. (There's an interesting table in the company's 'Rig deployment' presentation [1] that goes into detail on this.)
Desire points out that with utilisation over 90%, despite some slackening of demand, out of 100 units that are technically capable of being deployed in the Falklands, only 6 are actually available. The cost of the rig is considerable, too – over $300,000 a day.
However, that hurdle has now been crossed. A provisional deal with Diamond Offshore Drilling [2] will give Desire what it needs to carry out a major drilling programme starting in February 2010 (that is, the first well to be spudded in February) using the Ocean Guardian rig. Desire wants to drill four wells, in a minimum 80 day campaign, and has options for another six. Rockhopper Exploration will participate in the program – it has farmed in to Tranches C and D of Desire's prospects.
The company is deliberately not betting the bank on a single…
