MercoPress. South Atlantic News Agency

Falkland Islands: Desire drilling update

Desire Petroleum plc (AIM:DES) the oil and gas company wholly focussed on the North Falkland Basin, today provides the following update on the latest logging results from the 14/15-2 Rachel North well which, following additional wireline data, will be plugged and abandoned with oil shows .

The results from the new logging data can be summarised as follows:

1. As announced on 2 December 2010 preliminary results from the interpretation of the initial log data indicated that the well had encountered a 349m gross interval of sands and shales with hydrocarbons, of which 57m was net pay in multiple zones.

2. However sampling of the main sand has shown that the hydrocarbons are residual and that the mobile fluid is water.

3. Analysis of the formation water recovered by sampling indicates much lower salinity than anticipated and when this value is incorporated into a revised log interpretation it is confirmed that the sands are water bearing. The salinity impacts the resistivity of the formation water (Rw) which is used to calculate the saturation of hydrocarbons in sands. Using industry standard procedures, the initial interpretation was based on a calculated Rw value from a clear water sand only 55m above the target sand, of the same stratigraphic age and depositional setting. This calculated value was consistent with measurements from other wells in the basin. Unexpectedly, the actual Rw value in the sample taken from the main sand turned out to be markedly different and the target sand is now interpreted to be water-bearing.

4. Formation pressures and sampling confirm the presence of good reservoir quality in the upper sands.

5. A deeper target is still interpreted to be oil bearing, but the interval is thin and reservoir quality is poor.

The wells drilled by Desire in the Rachel area have identified five fan systems of varying areal extent and reservoir properties. Good reservoir development has been recorded in a number of the fans. Some of the sands are of a similar age to the sands in Rockhopper Exploration’s Sea Lion discovery. All of these fans will now be remapped incorporating the data from the wells to identify areas where better quality reservoir can be expected and stratigraphic traps developed. As these fans can only be mapped on 3D seismic, final mapping will therefore need to await the new 3D data acquisition, which is expected to commence shortly.

The company will now proceed with collecting the final logging data prior to plugging and abandoning this well. A full evaluation of all the data will then be undertaken. After completion of the Rachel North well the rig will move to drill the Dawn/Jacinta prospect in Tranche I in which Desire has a 100 percent interest. This prospect is independent of Rachel and is targeting sands at a number of levels and will explore the prospectivity on the southern margin of the basin immediately updip from the main oil source rock.

After the Dawn/Jacinta well, Desire is likely to drill another well at a location as yet still to be decided but the forward drilling schedule is still to be finalised.

Desire’s current cash balances are circa £75 million GBP equivalent. These funds will enable us to drill the Dawn/Jacinta well, an additional well and to cover our 3D seismic costs.

Commenting on the well, Stephen Phipps Chairman of Desire said:

“Having seen the highly encouraging results from the first logs, the LWD, PEX and CMR, on this well, plus accompanying oil shows, it is extremely disappointing that the subsequent wireline logs and fluids sampling have dashed all the earlier promise of this being Desire’s first oil discovery in the North Falkland Basin. Despite this setback, the presence of hydrocarbons and good reservoir development have been identified in a number of the Rachel fan sands and we therefore continue to believe in the prospectivity of the East Flank Play fairway for future oil discoveries.”

Subsurface support is provided to Desire Petroleum by Senergy (GB) Ltd and the results reported today are based on the work of the Senergy operations team.

This statement has been approved by Dr Ian Duncan of Desire Petroleum plc, who is a Fellow of the Geological Society, Chartered Geologist, and a member of the American Association of Petroleum Geologists with over 35 years experience in petroleum exploration and management.