Another oil strike in the Falklands
There has been an encouraging start to this year’s hydrocarbons exploration programme with the discovery of further oil and gas reservoirs to the north of the Falklands Islands.
The drilling rig - Eirik Raude – arrived in late February to begin the exploration of the Zebedee well, jointly owned by Falklands Oil and Gas Ltd (40%), Premier Oil (36%) and Rockhopper (24%). They announced in early April that two separate reservoirs of good quality oil and gas had been discovered. The well could release some 50 million barrels of oil and is an indication of a possible extension of the Sea Lion discovery of 2010, which was estimated to contain about 300 million barrels of oil.
The Zebedee well has now been capped and the drilling rig has moved to an untested area to the south of Sea Lion. This site – Isobel Deep - has a similar sedimentary formation to Sea Lion and is of roughly the same size. If successful, it could release the same amount of oil (and possibly more). Another two wells are definitely programmed for the northern basin with the possibility of two wells being drilled to the south of the Falklands. The southern basin is, however, much deeper with more exposed seas; so the rig would require additional capability. A farm-in partner would have to be found to fund these two wells and to help develop Borders and Southern’s sizeable gas condensate discovery of 2012 in the Darwin field.
The sharp drop in the oil price from about US $115 a barrel in June 2014 to about US $55 now has led to some entrenchment and risk analysts remain cautious about investment in the Falklands hydrocarbons industry. But Premier Oil is a well-diversified multinational and remains committed to the full exploitation of Sea Lion by 2019 (slightly later than originally planned). Even so, the Falkland Islands economy continues to benefit from this exploration phase – the Eirik Raude has at least three supply vessels in support plus helicopters. The Falkland Islands Government (FIG) has now set up the ‘South Atlantic Registry of Oil Suppliers’, a database to connect the oil and gas with local Falklands suppliers.
The Argentine Government has made its usual protest, which the UK Foreign and Commonwealth Office (FCO) has firmly rejected as an "unlawful assertion of jurisdiction over the Falkland Islands’ continental shelf”. The FCO asserted that the Falkland Islanders had the right to develop their hydrocarbons sector as a legitimate commercial venture "and we will continue to support them. Argentine domestic law does not apply in the Falklands”.