FOGL Excited By Potential Identified On Falklands Seismic It may...

FOGL Excited By Potential Identified On Falklands Seismic
It may only be seismic data but the results of a 9,450 km 2D shoot over the waters to the south and east of the Falkland Islands in the southern Atlantic have whetted the appetite of investors in Falklands Oil & Gas Limited. Shares in the company sprang up 14 pence, or almost 13 per cent, to 123 pence when it said the initial results from the survey had exceeded expectations, indicating a larger and more diverse exploration project than originally anticipated. The news also dragged up shares in Global Petroleum, which is a 16 per cent shareholder in FOGL, by 3 per cent to stand at 16.5 pence.

Describing the project as the most exciting he’s seen for many years, FOGL’s executive chairman John Armstrong said the “number of leads identified has far exceeded our most optimistic estimates”.

FOGL’s acreage off the Falkland Islands covers 83, 700 sq km, equivalent to the North Sea’s Southern Gas Basin and Central Graben. It is partnered in 33,700 sq km of the acreage by Perth-headquartered Hardman Resources which holds 22.5 per cent to FOGL’s 77.5 per cent.

FOGL said it has identified 130 leads distributed across different play types, some of which could hold recoverable reserves in excess of 200 million barrels. The 2D survey has identified numerous Direct Hydrocarbon Indicators, seismic signals that point to the presence of working petroleum systems. Some of these DHI leads cover areas of 300 to 500 sq km.

The company now plans to expand the scope of its exploration project and aims to define 20 drillable prospects by mid-2006, with first drilling due in 2007. First, however, there will be further seismic surveys targeting the 50 most promising leads, from which the shortlist of 20 will be drawn.

This expanded work programme is likely to require additional funding. FOGL has net cash of £10.9 million but that won’t go far with this kind of work load. The company is considering its financing options and expects to make an announcement shortly.

FOGL may be an oil junior but it certainly isn’t thinking like one. Its stated ambition is to develop the Falklands Islands into a new petroleum province by the end of the decade. This is something that Hardman Resources has some experience in. Hardman, which is listed on the Australian Stock Exchange and London’s Alternative Investment Market, signed up to explore the untested, frontier waters of the Mauritanian offshore back in 1996. Almost ten years on and the northwest African country is heading towards its first oil production. It’s an investment that proved a company-maker for Hardman - and this strategy of securing first-mover advantage in large swathes of as-yet untested territories is one the company hopes will pay off again in the Falklands.

Simon Potter, chief executive of Hardman, which plans to fund its share of the expanded exploration programme from “cash in hand”, said he was encouraged by the initial seismic results from the southern Atlantic. “There’s a wide range of play types with several different styles identified,” said Potter. “The number of leads identified has exceeded our estimates and we believe it has greatly enhanced the licence area’s value.”

The partners are licking their lips at the possible hydrocarbon resource of the basin. According to estimates by MBA Petroleum Consultants, some 1,250 billion barrels of oil or oil equivalent could have been generated in and around FOGL’s licences. The initial eight leads identified on the licences at the time of FOGL’s IPO in October 2004 were reckoned by petroleum engineers Scott Pickford to hold between 200 million and 600 million barrels of recoverable oil each. FOGL hopes to rehire Scott Pickford to repeat this assessment exercise on the leads identified by the new data. This will happen once the processing and interpretation has been completed in the third quarter of this year.

Investors should remain cautious for now, however. Seismic data, however promising, is no substitute for sinking holes into the subsurface rocks - and until those seismic leads are subjected to the drillbit, this remains a high risk exploration play.