Oil may be there, but bringing it to market is another matter

The Times
February 18, 2010
Oil may be there, but bringing it to market is another matter
Robin Pagnamenta: analysis

Billions of barrels of oil may lie trapped in the rocks deep beneath the ocean floor of the South Atlantic, but finding them and bringing them to market is likely to be a big struggle — vastly expensive and fraught with political complications.

A study by the British Geological Society suggested that the region could contain up to 60 billion barrels of oil — a similar-sized deposit to the North Sea. But such figures may give little sense of how much is recoverable using existing technology.

No drilling has been carried out in the Falklands since 1998, when Shell and Lasmo drilled six wells in an area to the north of the islands, not far from where the current drilling programme is set to start next week. Traces of crude were discovered in all but one of the wells — where gas was found instead — but the following year the global price of oil fell to $10 per barrel, ending the commercial logic of further exploration.

Since then there has been much speculation about the prospects of oil in the Falklands but little real activity on the ground — that is until last year when Desire Petroleum, a small, independent oil explorer, announced that it had contracted a rig and planned to tow it to the Falklands from the North Sea for a drilling campaign this year. Three other similar-sized companies are planning to share the £250 million costs of the campaign, which is due to start in a few day’s time.

The drilling site lies in relatively shallow waters about 400 metres (1,300ft) deep and between 30 and 60 miles north of the islands.

Two of the other companies, Falkland Oil and Gas and Borders & Southern, are prospecting in another region that lies to the south of the islands in deeper and more challenging waters up to 1,200m (3,900ft) deep. There is a reasonable chance that at least one of....

The Times
February 18, 2010
Oil may be there, but bringing it to market is another matter
Robin Pagnamenta: analysis

Billions of barrels of oil may lie trapped in the rocks deep beneath the ocean floor of the South Atlantic, but finding them and bringing them to market is likely to be a big struggle — vastly expensive and fraught with political complications.

A study by the British Geological Society suggested that the region could contain up to 60 billion barrels of oil — a similar-sized deposit to the North Sea. But such figures may give little sense of how much is recoverable using existing technology.

No drilling has been carried out in the Falklands since 1998, when Shell and Lasmo drilled six wells in an area to the north of the islands, not far from where the current drilling programme is set to start next week. Traces of crude were discovered in all but one of the wells — where gas was found instead — but the following year the global price of oil fell to $10 per barrel, ending the commercial logic of further exploration.

Since then there has been much speculation about the prospects of oil in the Falklands but little real activity on the ground — that is until last year when Desire Petroleum, a small, independent oil explorer, announced that it had contracted a rig and planned to tow it to the Falklands from the North Sea for a drilling campaign this year. Three other similar-sized companies are planning to share the £250 million costs of the campaign, which is due to start in a few day’s time.

The drilling site lies in relatively shallow waters about 400 metres (1,300ft) deep and between 30 and 60 miles north of the islands.

Two of the other companies, Falkland Oil and Gas and Borders & Southern, are prospecting in another region that lies to the south of the islands in deeper and more challenging waters up to 1,200m (3,900ft) deep. There is a reasonable chance that at least one of the companies will find oil — but whether it is found in commercial quantities is less clear.

The Falklands are so remote that any oil discovery would need to be large to justify the multibillion- pound costs of building pipelines, export terminals and other infrastructure. Then there are the political obstacles with Argentina, which are likely to deter industry giants such as BP, Shell and Exxon. Until a resolution with Argentina can be reached over who owns the oil, they are likely to remain sceptical.

In the meantime, Desire claims to have been unaffected by Argentina’s sabre-rattling. It shipped a full set of spares and replacement parts to the Falklands before drilling begins to minimise any delays in the event of technical or political problems.