By Amy McLellan
After several years of hiatus, Argos Resources is set to spin the drillbit on its acreage in the Falkland Islands. The AIM-quoted company has secured rig time in the current multi-well, multi-operator campaign by striking a deal with Noble Energy and Edison, which decided to rejig their drilling timetable in the waters to the south of the islands and will instead use the freed-up rig slot to drill Argos’ Rhea prospect in PL001 in the North Falkland Basin.
The terms are certainly not what Argos’ patient shareholders will have been looking for – but it does buy some much-needed exposure to the drillbit. Noble will assume operatorship and earn a 75 per cent working interest in the 1,126 sq km licence, with Edison earning 25 per cent, in return for fully funding an exploration well.
Argos will be left with an overriding royalty interest of five per cent of gross revenues from any discoveries developed on the licence plus US$2.75 million in cash plus US$800,000 per year from January 2016 through to first royalty payment as reimbursement for historic costs.
This deal means the company will fulfil its remaining work obligation on the second exploration term of the licence, secure some cash, be freed from future obligations on the block and retain some exposure to the success side – albeit a tiny fraction of what long-suffering shareholders might have expected.
Rhea is the company’s top-ranked prospect, which Argos reckons could host 449 million barrels of recoverable oil with the potential to de-risk other prospects on the licence.
Should Noble and Edison elect to surrender the licence following the drilling of the Rhea well, then the licence will revert to Argos. The transaction is subject to shareholder, Government and regulatory approvals: there will be general meeting on May 4 at the Falkland Islands Chamber of Commerce in Stanley, the capital of the Falkland Islands.
Argos chairman Ian Thomson said he was delighted to have entered this agreement with “such highly-regarded and financially robust partners”. “The innovative nature of the transaction means that there is no material shareholder dilution or further shareholder funding required by the company for any future investments in Licence PL001,” said Thomson, who said the agreement also meant the company’s financial position and outlook was now “robust”. Shares in the company slipped 15 per cent to 6.38 pence per share.
The opportunity comes after Noble, Edison and Falkland Oil & Gas re-scheduled their drilling plans by deferring a potential second well in the South and East Falkland Basin. This deferment will give the JV time to fully assess results from the Humpback wildcat, considered the “prime play-opening” in the basin, and plan further exploration and appraisal wells in order to potentially take advantage of lower future drilling costs and complete the technical assessment of the Scharnhorst and Starfish prospects in light of the Humpback results.