Falklands Oil and Gas shares closed more than 5% higher yesterday following news it had discovered gas at its Loligo well.
But the announcement still disappointed many investors, who had pinned their hopes on the company finding oil.
It’s still very early stages and significant analysis will need to be undertaken to determine commerciality.
Depending on quality, a gas discovery might well turn out to be economically viable and the expertise of drilling partner Edison, which has gas plays in Egypt and know-how in the gas value chain, will be a significant benefit.
Investor attention will then shift to FOG’s Scotia prospect. Drilling is expected to take 65-80 days with a target of 1billion recoverable barrels. This will then complete FOG’s drilling campaign for 2012.
Should the Loligo and Scotia wells be drilled within budget the company estimates that cash balances will not be less than £123million at the year-end.
This should leave plenty of financial headroom for further seismic surveys and further exploratory drilling in 2014 without the need for fresh equity raising.
The Falklands remains an area of huge interest for private investors.
As with all investments, we would remind investors to retain a degree of caution on the area given its locality and political risk.
Alan MacPhee is investment manager at Brewin Dolphin in Aberdeen