Borders commercial gas condensate find bodes well for Falklands dream

Its sure been a topsy turvy couple of years for investors in the Falklands Islands oil explorers. Rockhopper managed to find 355.6 million barrels of contingent resources (2c) following its successful 2010/2011 exploration campaign in the North Falkland basin. The company recently announced a farm out to Premier Oil to develop the Sea Lion discovery with first oil in 2016.

Then we had fellow North Falklands explorer, Desire Petroleum which, unfortunately, seemed to have a terrible knack of delivering plenty of disappointments (aswell as confusing water and oil!).

The story now continues with Borders and Southern with today’s announcement of a probable 190 million barrels of gas condensate at its Darwin East discovery, making it likely to be commercial on a stand-alone basis. If Falkland Oil and Gas (FOGL) can find anything significant at its current Loligo drill or its Scotia prospect, the South Falklands is going to be as interesting as the shallower North Falkland basin, if not more so!

The shares rallied 60% to 32.25p but remain well below the 120p plus level achieved prior to the Darwin East drill and below the last placing at 84p but off the recent lows of 14p that were plumbed following the disappointment of the Stebbing well. The price showed real strength into the close suggesting continued positive momentum tomorrow.

It is frustrating that further exploration or appraisal wells are not on the cards until 2014 but a positive result from FOGL’s wells as well as $200 million war chest for FOGL could give plenty of scope for Borders to team up yet again to access suitable deep water rigs. The question is how quickly BOR can attract a farm out partner to fund further drilling activity based on the gas condensate results as unlike FOGL, BOR’s coffers are pretty much depleted.

So, the Falklands Oil story is great news for UK plc particularly after confirmation this week that corporation tax receipts from the North Sea fields were heavily down versus 2011. A situation certainly not helped by the additional corporation tax burden announced in the March 2011 budget but also a reflection of the natural depletion of the largest fields as well as issues with major production areas such as the Total Elgin field. If the Falkland Islands can stem the decline in North Sea production in 2016 onwards and become a major production area, no wonder the Argentinians are getting more and more tetchy.

Contrarian Investor UK