A sea change in investor perceptions of the commerciality of Falklands Islands discoveries?

While the Falklands Islands Oil investments have historically been for small-cap investors, the landscape is now starting to change with the arrival of UK mid-cap leader Premier Oil and, most recently, US independent Noble Energy onto the scene.

Their arrival should signal a step change in investor sentiment both around the commerciality of existing discoveries and the longer-term exploration intent of operators in the region. Rather than the perennial investment issues being around funding and ‘what next’, there is now a firm commitment to continue to promote exploration and development, with some interesting nuances appearing around preferred geological play types. 

Arrival of Noble on scene brings strong E&D credentials 

Coinciding with the spudding of the largest of the 2012 exploration targets with the Loligo well, the big Falklands news this week is the farm-in of large US independent Noble Energy into Falkland Oil & Gas’s (FOGL) acreage.

For investors outside the US, Noble may not be a household name, but the $15bn market cap company has an impressive track record of both exploration and development. European investors know it for its major gas finds in the East Mediterranean that amount to gross mean resources of 28tcf of gas across its Tamar and Leviathan fields offshore Israel. In West Africa the company is active in primarily Equatorial Guinea where it has discovered c 300mmboe of resources. Noble has been very successful at rapidly developing its EG assets into production and this should give investors confidence there is a clear monetisation route available in the event of there being commercial discoveries in the South Falkland basins. 

Mesozoic focus – joining the dots  

Both the Noble farm-in and the recent Premier deal with Rockhopper offer some interesting observations about the geological play type preferences of the to-be operators. While the Premier deal includes forming a JV with Rockhopper to test Mesozoic analogues, Noble is focusing firmly on Mid-Cretaceous targets with the Scotia well a clear priority in 2012. Tullow has already joined the dots between West Africa and Central America with its Zaedyus discovery proving the same play type as its Jubilee discovery in Ghana and both farm-in parties clearly see similar analogues as being possible with Mesozoic plays between Africa and the Falklands.

Borders & Southern – Gas may still be interesting 

Borders and Southern’s 2012 wells to date have been technical gas and gas/ condensate discoveries. While investors are naturally lukewarm to gas discoveries without an obvious route to market, this is how most frontier gas developments get off the ground. Anadarko/ Cove kicked off East Africa with discoveries of less than 5tcf that have now risen to 100tcf across Mozambique and Tanzania. Borders has already announced c 2.5tcf of gas in place from its Darwin discovery, while if Loligo is a major gas discovery, it could amount to as much as 25-30tcf. Oil remains the primary target but the South Falklands could still yet be a major gas play; all is still to play for.

Base article courtesy of Edison Investment Research