Falklands oil results a blow to U.K. firms

July 18, 2012 at 6:38 AM
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STANLEY, Falkland Islands, July 18 (UPI) -- Prospecting for oil and natural gas in the South Atlantic waters off Falkland Islands is attracting investors despite heavy losses suffered by some British companies involved in the project.

A continuing incentive for international investors is the promise of significant finds of crude oil and natural gas in the ocean, indicated in scientific surveys of the seabed and geological formations.

Argentine challenges to the hydrocarbon exploration program haven't deterred investors or prospectors. Britain backs the effort, arguing it's a step in the right direction to make Falklanders financially independent.

Argentina invaded the islands in 1982 but was repulsed by Britain in a 74-day conflict that led to the deaths of 649 Argentine troops, 255 British military personnel and three Falkland Islanders.

Argentina says the islands are historically part of its territory and calls the islands' British overseas territory status a colonial anachronism.

Despite positive results in some early investigative drilling, prospecting firms also faced setbacks. Shares in Borders and Southern Petroleum slumped 70 percent after a well drilled at great expense south of the islands failed to yield gas in commercial quantities.

It was the second unproductive drilling operation in the area by Borders and Southern Petroleum, which is listed on the London Alternative Investments Market.

About three months ago, the company's stock was riding high, raising investors' hopes they were headed for an energy bonanza.

Supporters for the exploration program say prospects are still immense and Borders and Southern Petroleum was just unlucky. The company's experience also affected the stocks of other companies operating in the area, even as efforts were under way to secure more funding for the relatively successful Falkland Oil and Gas and Rockhopper.

Premier Oil has reached a $1 billion deal to develop Rockhopper's offshore oil and gas discoveries. The company received full British government backing for the investment, officials said.

Most of the funds are expected to go toward developing a Rockhoppper field, called Sea Lion, discovered in the north Falkland basin in 2010.

Premier said it would partner Rockhopper paying an initial $231 million and provide about $770 million to help build infrastructure for further development of the Sea Lion field.

"Rockhopper has made excellent progress in commercializing the Sea Lion project which offers attractive returns and fits well with Premier's proven operating and development skills," Premier Chief Executive Officer Simon Lockett said.

"This transaction extends our strong growth profile beyond 2015 and offers both exploration and development upside for our shareholders. We look forward to working closely with Rockhopper and the Falkland Islands government on this very exciting project," he added.

The investment deals come amid a diplomatic standoff between Argentina and Britain and Argentine moves to discourage maritime traffic and prospecting in the Falklands.

Soon after Premier's announcement, Argentina sent a letter to the oil company declaring the drilling illegal and warning that criminal charges could ensue.

British officials said Argentine threats had no legal basis.

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