The Falklands - Is There Oil?

On 13 December British-based oil and gas exploration company Rockhopper Exploration Plc announced that a new well proved its Sea Lion field 80 miles off the Falklands coast is bigger than expected. Rockhopper Exploration Plc's final well in its North Falkland drill program penetrated all four reservoir targets and wireline logging indicated that the reservoirs are hydrocarbon bearing.

Rockhopper Exploration Plc has licenses to explore oil and gas in the North Falkland Basin.

Rockhopper has 100 percent of four offshore licenses in the North Falkland Basin, PL023, PL024, PL032 and PL033. PL023 and PL024 licenses collectively cover 811 square miles and PL032 and PL033 licenses cover 625 square miles and Rockhopper Exploration Plc has also farmed in to licenses PL03 and PL04, which total 517 square miles.

The announcement is certain to infuriate newly reelected Argentinean Prime Minister Cristina Kirchner, who in 2010 criticized Britain attempting to exhaust "Argentinean natural resources."

Analysts estimate that Rockhopper Exploration Plc could recover as much as 430 million barrels of crude from Sea Lion. Rockhopper Exploration Plc said it believed that its "Sea Lion Main Complex" site had 1.297 billion barrels of oil reserves, in addition to its nearby Casper field which was estimated at 90 million barrels.

Rockhopper Exploration Plc CEO Sam Moody crowed, "This fantastic result from our most aggressive well of the campaign will further increase our minimum estimates of oil in place for Sea Lion and Casper, in addition to proving two new discoveries in Beverley and Casper South, which is our third oil discovery in the Basin." Rockhopper Exploration Plc chairman Dr Pierre Jungels said last week, "We continue in the rare position of holding 100 percent of what we are proving up to be a world-class asset, which makes a range of options available to us. Having established that the field is commercial and that it will be developed, we will now look to proving how, and potentially with whom, best to achieve such a development."
 
In 1982 Argentina and Britain fought a brief but bloody war over the windswept archipelago, and 11-week conflict claimed more than 900 lives, leaving Britain having reasserted its sovereignty over the islands.

Argentina has claimed sovereignty over the islands since 1833, when Britain reestablished its rule of the archipelago.

Who's there? Roughly 3,000 "kelpers," as Falklanders are often called because of the seaweed found on the islands, who are determined to remain British.

Rockhopper Exploration Plc believes it could be pumping 120,000 barrels a day out of its Sea Lion field by 2018 and to start pumping oil by 2016.

Any wiggle room for negotiation?

Apparently not. Britain has sworn to defend the Falklands and says it will only discuss sovereignty or oil rights with Buenos Aires if the islanders want talks and British conservative Prime Minister David Cameron recently said, "As long as the Falkland Islands want to be sovereign British territory, they should remain sovereign British territory. Full stop: end of story."

But diplomacy may yet undo Rockhopper Exploration Plc's development plans, as Latin American nations from Brazil to Uruguay have lined up to declare that they would not allow their ports to be used to support any British energy initiatives off the Falklands. Putting a brave face on it, Rockhopper Exploration Plc's announced that it believes that it can build production facilities without access to South American ports, although its plans to use floating production, storage and offloading (FPSO) vessels to store oil before offloading it onto shuttle tankers will add to its development costs and says that it needs $2 billion to build the project.

Funding may well prove to be the Achilles heel of Rockhopper Exploration Plc's dreams, as few international investors are likely to underwrite a development project situated in what was a war zone 29 years ago. Such fiscal difficulties are already emerging, as Argentinean Deputy Foreign Minister Fernando Petrella commented of the Rockhopper Exploration Plc survey exploration efforts, "If there is a big find, I imagine the companies will be sued. There would very likely be legislation in the international courts. We're going to do our best to curtail the financing of the companies and make their lives difficult."

But whatever happens, one thing is certain - the Falklands issue will continue to bedevil Britain's relations with not only Argentina, but increasingly, Latin America as well.

By. John C.K. Daly of Oilprice.com