Industry | 2010.02.22
Falkland Islands oil drilling begins
UK government underlines support for exploratory project as shares in group Desire Petroleum soar by 25%
Drilling for oil off the coast of the Falklands Islands began today after months of building diplomatic tensions between Britain and Argentina over rights to the islands and any natural resources that can be extracted from surrounding waters.
The exploration group Desire Petroleum – named after HMS Desire, which claimed to have discovered the islands in 1592 – issued a statement to the London stock market today confirming its Ocean Guardian drilling rig had "spudded", or broken ground, at 2.15pm.
Shares in Desire have climbed more than 25% since the Guardian rig departed from Cromarty Firth in Scotland in November destined for the South Atlantic. They dipped slightly yesterday, down 4.25p at 112.75p.
Underlining the British government\'s support for the exploratory project, defence minister Bill Grammell today stressed he would take "whatever steps are necessary" to protect the legitimate activities on the islands and in its waters.
"There has been no change whatsoever to our policy and we have no doubt whatsoever about the sovereignty of the Falkland Islands, and no change in our support to their legitimate right to develop a hydrocarbon industry within its waters. We do, we have, and we will take whatever steps are necessary to protect the Falkland Islands and our counterparts in Argentina are aware of that."
His comments come after Buenos Aires has sought to ratchet up the diplomatic pressure on exploration in the area, located just 300 miles from the South American mainland. The Argentinian government still disputes British sovereignty despite its ill-fated invasion in 1982 which ended in UK forces reclaiming the archipelago following a seven-week war.
Weeks after the Ocean Guardian departed Scotland, Argentina passed a law provocatively including the disputed islands – which it knows as Las Malvinas – within the southern Argentine province of Tierra del Fuego. Last month it said the latest exploration mission was illegal, and barred the loading of pipes onto a ship allegedly operating in the Falklands.
The sea around the islands could contain up to 17 billion barrels of oil and 51 trillion cubic feet, or 9 billion barrels of oil equivalent, of gas, according to a report in 2000 by the US Geological Survey.
Desire has jointly hired the Guardian, manned with between 80 and 100 workers, for 80 days at a cost of $20m (just under £13bn). It is expected to update shareholders on the first well in a month\'s time. Other firms exploring in the area include Rockhopper Exploration, Falklands Oil & Gas and Boarders & Southern. Seven wells in the Falklands\' territorial waters are planned for this year.
As well as the increasing diplomatic uncertainty around the latest wave of exploration, industry analysts believe the expensive expedition also represents a high financial risk for investors.
Previous searches for oil in and around the Falklands have proved particularly disappointing, with exploratory projects in the late 1990s finding no reserves of a commercial scale. Since then climbing oil prices and improvements in drilling and extraction technologies have prompted others to return.
For more information, please visit
http://www.guardian.co.uk/uk/2010/feb/22[...]nd-islands-oil-drilling-begins
