Within just days, the semi-submersible, Ocean Guardian, should arrive under tow off the Falkland Islands following an epic journey that started in the Cromarty Firth and which, except for a brief pause at Falmouth to shelter and allow the anchor-handler, Maersk Traveller, to repair a towing cable, was relatively routine.
The rig is being managed out of Aberdeen by AGR and is to drill four firm wells in the North Falklands Basin, with an option to drill six more, according to Desire Petroleum, which can be broadly regarded as the powerhouse behind getting a rig into Falklands waters.
The Austral summer campaign is going ahead in the face of opposition from Argentina and Chile, which are contesting possession of waters currently controlled by the UK.
Moreover, Argentina has been sabre-rattling in recent weeks. In December, its government passed a law claiming to own the islands and several other British territories in the South Atlantic.
However, the aggressor has been put firmly in its place by the UK political machine. Moreover, the Falklands are bristling with more firepower than at any time past, including a squadron of Tornado aircraft.
In a written statement, junior Foreign Office minister Chris Bryant said the UK had “no doubt” about its sovereignty over the Falklands, South Georgia, South Sandwich Islands and the surrounding seas, as well as the British Antarctic Territory.
The Foreign Office delivered a “note verbale” to the Argentine charge d’affaires in London outlining the UK’s rejection.
Mr Bryant said: “The UK firmly rejects the enactment and promulgation, on December 9, 2009, of Argentine Law 26.552, and thus the additional paragraph in Article 1 of Argentine Law 23.775, insofar as it purports to include within a province of Argentina areas which comprise the Falkland Islands, South Georgia and the South Sandwich Islands, and the British Antarctic Territory.”
However, under a United Nations plan to divide up Antarctic region resources, Argentina wants all waters around the Falklands, South Georgia, South Sandwich Islands and any other British possessions that may lie within the 1.7million sq km claimed.
Chile has filed a claim that largely mirrors the Argentina submission. By comparison, the UK is laying claim to a more modest 1million sq km.
The deadline for Antarctic Shelf claim submissions to the UN was May 13, 2009, with no firm date given for determinations. However, Gavin Farquhar, who runs the Falklands office of law firm McGrigors, told Energy that the claim and counter-claims amount to a stalemate, something the UN might be loath to try getting embroiled in.
Ocean Guardian is on hire to Desire Petroleum, a London-listed junior that participated in the short-lived first campaign, which took place as oil prices were sliding towards a sub-$10 basement in the late-1990s upstream downturn.
While Desire is the lead player, it cannot foot the bill on its own. Rockhopper Exploration, another London-listed junior, will share the costs of at least one well, but wants to drill more – most likely two.
The first well to be drilled by Desire is likely to be the Liz prospect, where the prize could be up to 660million barrels oil equivalent. At least that was the state of play on January 11 when the company made a presentation to analysts.
According to that presentation, Rockhopper will likely drill the second well on a prospect known as Sea Lion. It is interesting that Rockhopper’s first choice is not Johnson, the name given to a well drilled by Shell in the first campaign which encountered what is now regarded as a gas accumulation with multi-trillion cu ft potential.
The subsequent drilling order depends on Australia’s BHP/Falklands Oil & Gas, which may also participate, and the results of the first two wells.
However, Desire has stressed that the programme is “designed for flexibility, operational efficiency and the need to thoroughly evaluate the basin”.
If early results are promising, Ocean Guardian could spend the best part of a year in Falklands waters.
H2 2009 saw speculation that both Desire and Rockhopper would need to raise additional funds, plus Rockhopper had been hoping to conclude farm-in negotiations for one of its prospects.
The Financial Times said Desire was looking to raise about $80million (£50million) by selling new shares at 75p each, while Rockhopper was planning to raise a similar amount at a price yet to be determined.
In Desire’s case, on December 9, the company announced an open offer to raise gross proceeds of up to £20.3million (about £19.9million, net of expenses) through the issue of up to 28,971,544 new ordinary shares at an issue price of 70p.
That offer closed on January and was heavily oversubscribed.
As for Rockhopper, its chairman, Pierre Jungels, said in September that the company’s board was “pursuing a number of financing options, including the raising of new capital and/or farm-outs”. He said it was “confident that the group would be able to raise funds when required in order to fund development of its assets and to continue in operation”.
In the event, it made a £50million share placing in November.
Falklands Oil & Gas has followed a similar strategy, going to the market in November with a successful placing designed to raise £50million.
The company said the net proceeds of the fundraising would be used to fully fund FOGL’s share of the costs of a drilling programme which could start during H1 this year and incorporate a deepwater programme of one committed well and other possible discretionary wells, which the BHP/FOGL JV expects to commence late this year.
So what is the prize that has kept the fires of anticipation blazing at Desire and Rockhopper especially, but not forgetting FOGL?
The fuel has surely been British Geological Survey’s unswerving view that the Falklands Shelf possesses some of the most prolific source rocks to be found anywhere in the world, coupled with the tantalising results of the first drilling campaign and subsequent seismic and CSEM (controlled source electromagnetic) surveys.
The BGS estimate is that 11-60billion barrels of oil could have been expelled from the Lower Cretaceous lacustrine source present in the North Falklands Basin, which is described as a relatively narrow and elongated (50km by 250km) half graben basin with a thick and good-quality syn-rift lacustrine shale source rock sequence.
Parallels have been drawn with the Lake Albert Basin in Uganda. It is smaller – about 40km wide by about 125km long – and has, over the past three years, delivered a prolific stream of oil finds for Tullow and Heritage.
In the first Falklands campaign, six wells were drilled; hydrocarbons were encountered, and yet all the consortia pulled out. A lack of thorough planning, an oil price heading for less than $10 a barrel and perhaps insufficient conviction put an early end to dreams of a South Atlantic bonanza.
It was a serious blow to Desire, whose share price at that time rocketed towards the £10 mark only to slump to a few pennies within months. However, the company and its dream survived and, late-January, its stock was trading around 110p in anticipation of big finds being made over the coming weeks, and perhaps months.
The results of the six wells drilled in the first campaign were:
14/5-1A – Shell, 4,525m total depth. Result – oil shows, plus gas.
14/10-1 – Shell, 3,005m, live oil of 27 Deg API.
14/9-1 – Amerada Hess, 2,590m, oil stains.
14/9-2 – Amerada, 2,345m, oil stains.
14/13-1 – Lasmo, 1,475m, dry hole.
14/24-1 – Lundin, 2,914m, oil stains.
All this acreage was eventually relinquished by the various consortia and later picked up by Desire and Rockhopper.
The other key licence holders are Falklands Oil & Gas, and – via a farm-in with FOGL – Australian natural-resources conglomerate BHP Billiton holds an interest in 14 licences.
The second campaign is based on extensive research of well data from this first sortie, coupled with the seismic and CSEM surveys referred to earlier.
Rockhopper hired Australian consultants RPS to carry out a detailed assessment of all available data, while Desire hired UK group Senergy to conduct parallel analysis.
There is close correlation between the outputs of RPS and Senergy, although the latter is more detailed, including drawing comparisons with other basins such as the Albertine Basin in Uganda which Tullow and Heritage are successfully exploring.
However, differences between these competent person’s reports (CPRs) mostly lie in nuances rather than fundamentals.
In a way, the most intriguing prospect in the Rockhopper portfolio is the 14/5-1a (Johnson) natural gas discovery made originally by Shell but only minimally acknowledged as such 10 years ago.
According to RPS, well 14/5-1 encountered significant gas shows and kicks within the deeper drilled sections (3,500-4,525m). It offers multi-trillion cu ft potential.
Johnson is described as a very large gas-bearing structure, possibly 250sq km in area.
Log analysis from the former Shell well report indicates that, within the deeper sand units, over 165m of gas pay was present.
Independent log analysis performed by Rockhopper indicates that 5-130m of gas pay was intersected by the well.
Senergy says: “All the studies appear to tell a similar story of a thick gross interval (500m-plus) that is mature in its lower part below 2,400m to 2,650m and at peak oil phase below 2,800m to 3,000m.
“In addition, well 14/5-1 encountered increasing gas (up to 32%) with gas breaking out of the drilling mud below about 4,000m. The gross source sequence in this well is over 500m thick.”
Senergy suggests that the evidence from just this one well could point to “the possibly widespread presence of a deeper (early Jurassic?) mixed gas and oil-prone source in the basin”.
Senergy says, too, that of the previous wells drilled in the basin, at least 14/9-1 and 14/10-1 drilled valid closures, and that under-charging and/or lack of migration was probably responsible for the “absence” of hydrocarbons.
For Rockhopper, Sea Lion and Ernest are the company’s primary oil targets. Both have direct hydrocarbon indicators – Sea Lion in the form of AVO anomaly, Ernest in the form of a positive CSEM anomaly – and are clearly defined on seismic. Key Desire targets with mid-estimate reserves estimates include Jacinta (1.1billion barrels oil equivalent), Liz (660million boe), Pam (430million boe) and Beth (297million boe).
As for FOGL/BHP, their targets lie in the South Falklands Basin, which has never been drilled and therefore source, reservoir presence and quality and integrity of the proposed trapping mechanisms (majority of prospects are stratigraphic) are all key risks.
The priority target is said to be Toroa. It is located some 140km (90 miles) south of Port Stanley and is a large prospect identified in the Cretaceous Springhill play, with recoverable hydrocarbons estimated in the range 380million to 2.9billion barrels of oil. The planned drilling location is in about 600m (1,968ft) of water.
One way and another, this is set to become one of the most closely watched exploration campaigns of 2010, and the most politically significant and sensitive ever for the South Atlantic.
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