Borders and Southern spudded the 61/25-1 well on the Southern Falkland basin Stebbing prospect on 11th May and today, over two months later, the company announced that the well was unable to reach lower targets due to anomalous pressure conditions with strong gas shows. Despite additional contingency well casing, they were unable to evaluate the lower targets due to concerns about maintaining well integrity.
In the upper target zone, due to the thin bedded character of this sequence, it was not possible to obtain a clear indication of the fluid type or saturation but Borders believe any hydrocarbons are probably non commercial. Ooops.
The Leiv Eiriksson rig will now move to the Falkland Oil and Gas acreage in the South Falklands basin to drill Falkland Oil & Gas’s Loligo prospect and Stebbing is now being plugged and abandoned.
Not a good day for Borders shares as a result, down 70% to 20p or so with a low of 18p. Fellow Falkland Oil drillers, Falkland Oil and Gas is down 13% to 75p and Rockhopper Exploration is down 7% to 237p.
Stebbing was always a high risk, high reward prospect with a COS (Chance of Success) of around 25-30%. This is wild cat frontier drilling in deep water, versus the shallow waters of the North Falkland basin, making it technically challenging, time consuming and expensive.
The company is now valued at £90 million or so and is reliant on a positive result from the gas condensate analysis from the Darwin East well which is due by the end of the month. Anyone buying in at these depressed levels is reliant on such a positive result indicating that the condensate is geared towards oil rather than gas – this is far from certain. The company has insufficient money for any additional drilling on its licences at this stage.
Disappointing news for the Falkland Oil dream after Rockhopper’s success story in the North of the Islands in 2010/2011 culminating in the decision to farm out to Premier Oil meaning that oil will be flowing in 2017.
What happens with Falkland Oil and Gas’s two wells is still completely uncertain since they are not geologically linked to Borders Darwin and Stebbing well’s. Investors should take not of the delays with drills to date and expect at least a 2 month window before Falkland Oil and Gas announce any results of meaning. A roller coaster of a ride for Falkland Island oil investors!
Contrarian Investor UK