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Falklands oil prospecting firms near merger

Oct. 24, 2013 at 6:46 PM   |   Comments

STANLEY, Falkland Islands, Oct. 24 (UPI) -- Two of the companies drilling for oil in the Falkland Islands' South Atlantic waters are merging and further corporate patch-ups may not be far behind, industry analysts said.

After several fits and starts, and investor jitters over the prospecting firms' lackluster performance in the early phase of Falklands oil quest, the British Overseas Territory's oil economy is stabilizing, analysts said.

The oil-fueled optimism in the territories bodes well for companies and existing shareholders and is certain to draw more cash into the venture, made controversial and risky by Argentina disputing both the territory's British rule and the mainly British oil companies' right to prospect for oil.

Britain and Argentina went to war over the islands in 1982 after an Argentine military junta briefly captured parts of the territories. The 74-day Falklands War led to deaths of 649 Argentine and 255 British military personnel and three civilian Falklanders.

British victory over Argentina catapulted Prime Minister Margaret Thatcher to short-lived glory and spelled doom for the Argentine military dictatorship.

South Atlantic waters around the islands are deep and drilling has been expensive, scaring off some early investors. But Falkland Oil and Gas Ltd and Desire Petroleum agreed to merge to eliminate duplication and make their search more cost-effective. A merged new company is set to be announced by Dec. 19.

Falklands oil quest lost some of its pull for investors as oil prices fell, fracking produced new provinces for new oil and the United States emerged as the world's largest producer, thanks largely to shale exploitation.

Patriotic zeal and Britons' nostalgia for the last century's North Sea bonanza have kept the momentum for a much awaited oil boom in the Falklands. If and when commercially viable oil is found in the Falklands Basin, it will bear the British stamp, albeit under Falklands umbrella, analysts point out.

After early losses on some prospecting investors in Britain and the Falklands remain upbeat, hopeful that big oil isn't farther than a few miles down below the seabed.

The FOGL-Desire deal was hailed as a win-win tie-up, with FOGL gaining access to the North Falklands Basin for the first time and Desire receiving more cash for drilling. FOGL's maritime forays into the South Falklands Basin haven't proved encouraging but Rockhopper Exploration, another British-listed company, found about 1,428 million barrels of oil in the north basin.

Merger negotiators said the tie-up will benefit everyone in the Falklands oil industry.

Stephen Phipps, chairman of Desire, indicated the deal would draw new investment but would benefit other operators.

"Not only do Desire shareholders retain material interests in Desire's highly prospective exploration acreage, but we also benefit from the farm-out with Premier Oil (PMO) and Rockhopper, exposure to FOGL's upcoming program in the South Falkland Basin, a strong balance sheet and expert partners," MercoPress reported, quoting Phipps.

FOGL already is in talks with Premier and Rockhopper for farm-out deals.

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