Rockhopper and FOGL gush higher as rig heads to the Falkland Islands

By Amy McLellan
Rockhopper Exploration, which is due to present at Oilbarrel.com’s 70th conference on Wednesday, has announced the mobilisation of the Eirik Raude drilling unit from West Africa to the Southern Atlantic. Shares in the AIM-quoted company surged more than eight per cent in morning trading to 56 pence per share in anticipation of the newsflow set to come in the coming months.

The rig is expected to arrive in the North Falkland Basin in the first week of March to begin a six well exploration campaign for the different companies working in these remote waters. This will see the rig drill in both the North Falkland Basin and in the more challenging Southern Basin.

Rockhopper, which has led the charge in the Falklands and remains the only company to have made a commercial oil strike, will participate in the drilling of four prospects in the North Falkland Basin – Zebedee, Isobel, Jayne East and Chatham – targeting Pmean total recoverable resources of over 500 million barrels (160 million barrels net).

After taking account of its negotiated exploration carries with the different partners, including a US$48 million carry from partner Premier Oil, this multi-well programme will cost the well-funded company around US$25 million.
The drilling order has yet to be finalised but it is currently anticipated that the first well to spud will be Zebedee (Rockhopper has a 24 per cent stake), which is the southern lobe of the Sea Lion oilfield.

The rig could then see the other three wells in the North Falkland Basin drilled consecutively before the rig moves south.

This will be an exciting run of wells with the potential to add more resources near Sea Lion, where Premier plans a phased development. The first phase, involving 10-15 wells and a leased FPSO at a cost of less than US$2 billion, will target 160 million barrels in the north-east segment of the field with a view to first oil in 2019.

Importantly, this phased approach will allow Premier to push ahead without the need to bring in further partners ahead of project sanction, now scheduled for mid-2016. The results of the 2015 exploration campaign will, if positive, help determine the viability and scale of further phases of the development.

The exploration campaign is certainly exciting for the £150 million market cap company but, importantly, it is no longer a binary make-or-break play. Last year Rockhopper wisely diversified the portfolio, buying fellow AIM explorer Mediterranean Oil & Gas in a deal that added 2C contingent resources of more than 32 million boe at an acquisition price of less than US$1 per barrel.

This included production, development and exploration interests in Italy, Malta and France and the company also added to its new Mediterranean footprint with the award of acreage offshore Croatia.

News that the rig is en route to the Falklands also triggered a 17 per cent rally in the share price of Falklands Oil & Gas Limited (FOGL), to 17.25 pence. FOGL has a 40 per cent stake in the Zebedee, Isobel Deep and Jayne East wells in the North Falkland Basin.

It will also have a 52.5 per cent stake in the large Humpback prospect in the Diomeda fan complex, which will be drilled in the South Falkland Basin while the sixth final well in the Eirik Raude’s schedule has yet to be decided – it will either be in the South or East Falkland Basin and there are three candidates: the Stingray, Scharnhorst North or Starfish prospects. FOGL is still crunching through the 3D seismic acquired over the South Falkland Basin licences and this interpretation, which will help determine the final drilling location, won’t be complete until the end of March.

This will then clarify FOGL’s financial exposure to the exploration campaign. The company, which ended 2014 with US$100 million in cash, is fully funded for the four agreed wells but its exposure to the fifth well will depend on its location, the company’s equity in the well and whether the well is an exploration or appraisal well.

Shares in other Falkland explorers Borders & Southern and Argos Resources remained flat as neither company has booked rig time for the 2015 campaign.