The rollercoaster ride that is seeking oil in the disputed Falklands Islands territory has been illustrated once more.
Days after Desire Petroleum issued a positive update on its operations in the north of the area, Falklands Oil & Gas has abandoned its Scotia exploration well in the south basin after disappointing results. It said:
Whilst reservoir quality at this particular location was poor, it should be recognised that .... Scotia covers an area of approximately 350 square kilometres. As such, further technical work is required to assess just how representative this result is, and whether or not better quality reservoir may exist elsewhere within Scotia.
It also said that after the 2012 drilling programme was completed it would have $220m cash in the bank. But the market has taken the news badly, with the company's shares slumping 46% to 34p. Merchant Securities said:
The immediate result is a disappointment as the well did not confirm the presence of oil or high quality reservoir. We are reducing our target price to 57.7p from 152.0p to reflect that the Scotia well results did not confirm a commercial discovery. We are changing our recommendation from buy to sell.
Sam Wahab at Seymour Pierce said:
Today's much anticipated well results will come as a disappointment for investors in the company, following its gas find at the Loligo prospect in September. The recent rally in the company's share price was in market expectation of an oil discovery.
Drilling in South Falkland Basin has yielded mixed results so far this year, following Borders' two well programme, and we may see investor appetite in the region begin to wane in favour of the North Falkland Basin which encompasses the oil bearing Premier operated Sea Lion field.
The exploration programme being undertaken by UK companies in the area has provoked controversy and prompted Argentina to repeat its claims of sovereignty over the islands and threaten legal action.
