Desire Petroleum Plc, the U.K. energy explorer, plunged after saying the Rachel North well off the Falkland Islands won’t produce oil.
Shares fell 50 percent to 67.25 pence at the 4:30 p.m. London close on the news, which reversed the company’s Dec. 2 report that the well may have made a commercially viable find. Rockhopper Exploration Plc, which has a 7.5 percent stake in Rachel, declined 10 percent.
Rockhopper remains the only company with a potentially commercial discovery near the South American islands 8,000 miles (13,000 kilometers) from the U.K. that Prime Minister Margaret Thatcher went to war to defend in 1982. Today’s drop erases Desire’s 45 percent share-price gain this year that was driven by speculation of another strike.
“It is extremely disappointing that the subsequent wireline logs and fluids sampling have dashed all the earlier promise of this being Desire’s first oil discovery in the North Falkland Basin,” Stephen Phipps, chairman of Malvern, England-based Desire, said in a statement in London today. “Despite this setback, the presence of hydrocarbons and good reservoir development have been identified in a number of the Rachel fan sands.”
Further sampling and logging of the Rachel North well showed the salinity levels in the target sands to be different than expected, and is now interpreted to be water-bearing, Desire said.
Desire will plug and abandon Rachel and continue 3-D seismic mapping of the area. Its drilling rig will now move to the Dawn/Jacinta prospect in which Desire has a 100 percent interest. Desire’s current cash balance is about 75 million pounds ($118 million), enough to cover the drilling and mapping costs, the company said.