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FALKLAND ISLANDS: The Real Threat—Disappointing Drilling

Bottom Line: As 99.8% of Falkland Islanders vote ‘yes’ in a referendum to remain a self-governing British overseas territory, Argentina rejects the referendum as meaningless. The rhetoric is likely to remain just that. Oil and gas exploration will continue unabated and for now unthreatened. Argentine President Cristina Kirchner’s popularity is declining, and the Falkland Islands issue is an easy target for raising nationalist sentiments—a tried-and-true strategy for bolstering support.

Analysis: On 11 March 2013, Falkland Islanders voted in a referendum on their status, with a 92% voter turnout and a near unanimous “yes” vote. It was a vote that the five oil and gas companies currently exploring offshore here were monitoring uncertainly, but largely optimistically. While an armed conflict between Argentina and the UK over the Falkland Islands would indeed impede the exploration that is already underway and prevent new exploration activities, as well as jeopardize these companies’ stock prices, we do not believe that the situation will come to this in the near or medium term. The bigger threat to these companies is disappointing exploration results. Late last November, Falkland Oil & Gas (FLKOF.PK) saw its stock plunge 50% after disappointing drilling results. It could still hit big oil in its ongoing drilling campaigns, but disappointment remains the greatest threat to E&P companies. Threats emanating from Argentina are designed more to distract the public from the economic situation at home and the declining popularity of the leadership.

Flakland Islands Vote Yes

Recommendation: Keep an eye on Argentina’s rhetoric as a precaution, but follow more closely the results, activities and stock prices of E&P companies as they get further into exploration in the Falkland Islands to determine the real threat level to investments.




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