FALKLAND ISLAND OIL DREAM TURNS TOXIC FOR ROCKHOPPER AND BORDERS AND SOUTHERN

Despite Rockhopper Exploration (RKH) and Borders and Southern (BOR) being the only two companies to have discovered a liquid hydrocarbon find of any size in the Falklands Islands, they both languish at either close to or actually at 52 week lows.

After a significant sell off for the two stocks over the last few months the drop culminated in a 3.3% fall for Rockhopper to 147p and 8.4% fall for BOR to 19p on Friday which put the former at a 52 week low and the latter close to its low of 15p. The 52 week high for RKH was 392p and for BOR was 131p.

Rockhopper discovered 2P (proven and probable) resources in the North Falkland basin of 356 million barrels of oil and recently completed the farm out of 60% of its acreage to Premier oil in a deal worth a total of $1 billion including the development of the Sea Lion discovery. Borders and Southern has estimated that it has discovered 130 to 250 million barrels of recoverable gas condensate at its Darwin East well with a mid case of 190 million barrels.

Rockhopper 5 year weekly chart

Falkland Oil and Gas (FOGL) is currently drilling the relatively high risk Scotia well with results expected mid-late December after some technical delays due to a faulty blow out preventer on the rig. In mid-September the company made a gas discovery at its Loligo prospect.

BOR’s prospects are now very much tied up with potential success for Falkland Oil and Gas as this would be the catalyst for a change in investor sentiment and therefore funding for further wells on its acreage. For now it is carrying out more detailed seismic analysis.

Rockhopper’s next exploration well is unlikely until 2014 and first oil from its Sea Lion has been delayed to the end of 2016. Like Borders, Rockhopper is relying on some good news from FOGL to reignite interest in the Falklands area and perhaps allow a rerating upwards of its shares. Following the Sea Lion find, the shares spiked to over £5 a few months later and with the shares stuck in a downward spiral since the farm out, many investors from 2009/2010 are no doubt shocked to see the shares at the current lows. But that’s the reality of AIM and when there’s no news, the hot money leaves.

Those exiting Borders and Southern at around 130p as the rumours of a gigantic oil find swirled around the bulletin boards before its Darwin gas condensate announcement in the spring must be feeling very relieved right now!

Border 5 year weekly chart

Contrarian Investor UK