Falkland Oil Delays Drilling, May Sell Stock If Well Successful, CEO Says

Falkland Oil & Gas Ltd. (FOGL), a U.K.- based explorer in the South Atlantic, delayed the start of drilling at its Loligo well and may sell stock late 2012 if the well is successful, Chief Executive Officer Tim Bushell said.

The company will probably start drilling the first well at Loligo, southeast of the Falkland Islands, in April instead of the first quarter as it expects to receive the Leiv Eiriksson rig more than a month later than planned, Bushell said today.

Loligo, located to the east of the islands Margaret Thatcher went to war to keep British in 1982, holds as much as 5 billion barrels, Bushell said. Borders & Southern Petroleum Plc (BOR) will drill two wells early next year before passing the rig to Falkland Oil, while Rockhopper Exploration Plc. (RKH) has made the first commercial find near the disputed islands off Argentina.

“We’ve waited seven years” since the company was founded in 2004, said Richard Rose, an analyst at Oriel Securities Ltd. in London. “So we can afford to wait a bit longer. The prospects are clearly exciting, they are high risk, very large. We’ll see what happens. They’re ready to drill.”

Falkland Oil fell 4.7 percent to 55.25 pence as of the 4:30 p.m. London close. The shares have dropped 47 percent this year.

The company may sell more stock later in 2012 to raise funds for seismic tests if it discovers hydrocarbons, Bushell said. Falkland Oil is also in talks with potential partners to share the cost of drilling a second well, he said, declining to identify companies by name.

Well Funding

Falkland Oil has $160 million of available funds, enough to drill two wells. The company wants to invest in 3D seismic tests, which cost about $100 million for a large survey and would be about $50 million to $60 million for Loligo, he said. The company aims to drill further wells in 2013 depending on the success of next year’s program, he said.

“I’d be most surprised if all four wells come up completely blank,” Bushell said. The rig is contracted to drill two wells for Borders & Southern, two for Falkland Oil, and a fifth well that both companies have the option to drill.

Falkland Oil failed to find hydrocarbons after drilling its first well, Toroa, in July 2010. Loligo, named after a type of Patagonian squid, is one of the prospects in Falkland Oil’s acreage, which is as vast as the U.K. North Sea, Bushell said.

Scotia, Vincent, Nimrod

Depending on Loligo’s exploration results, Falkland Oil plans to drill either Scotia, which may hold about 1 billion barrels of oil equivalent, Vincent, which may have about 733 million barrels, or Nimrod, with 1.5 billion barrels, Bushell said. To be commercially viable, the wells need to contain 200 million barrels of oil equivalent, he said.

The Leiv Eiriksson, owned by Ocean Rig ASA, is currently drilling for Cairn Energy Plc (CNE) in Greenland. The contract has been extended to the end of November, and the rig should arrive in the Falklands by early January, when it will be used by Borders & Southern, Bushell said.

Argos Resources Ltd. (ARG) and Desire Petroleum Plc (DES) and are also exploring near the Falklands. Argentina claims sovereignty over the area and is protesting the drilling by forbidding vessels to load cargo at its ports. The Falkland Islands has said no Argentine company will be given a license.

To contact the reporters on this story: Laura Price in London at lprice3@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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