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Argentina’s Falklands claim will not significantly impact oil commerciality, says UK leading bank

Monday, August 22nd 2011 - 20:48 UTC
Full article 10 comments
RBS analyst Phil Corbett assessing the political issues of exploring for oil in the Falklands RBS analyst Phil Corbett assessing the political issues of exploring for oil in the Falklands

The commerciality of the Falkland Islands Rockhopper Exploration’s Sea Lion oilfield development shouldn’t be significantly impacted by logistical problems arising from Argentina’s claim over the sovereignty of the Islands, according to analysts at the Royal Bank of Scotland.

An article published Monday by Proactive Investors-UK, under the heading of “Rockhopper Exploration: Sea Lion commerciality not significantly impacted by Argentina/Brazil shipping ban, says RBS” and written by Jamie Ashcroft refers to the political problems which may arise.

Just a week after Rockhopper confirmed that the Sea Lion oil discovery, in the waters surrounding the Falkland Islands, is big enough to support commercial production it seems that political issues may come into focus for investors.

According to a report in the Sunday Times, Brazil has fallen into line with Argentina by barring vessels from docking in its ports if they are flying the flag of the Falkland Islands and this could have negative implications for any development of the discovery.

Looking at the potential problems in a note to clients, RBS analyst Phil Corbett said: “To date, there has been no significant impact on the timing or logistics of exploration and appraisal drilling operations in the North Falklands Basin from Argentina's stance on the sovereignty of the Falklands.

“While it may make a development more complex and costly (i.e. we would imagine a significant contingency in terms of equipment and people may have to be stationed in the Falklands given long supply lines) it shouldn't significantly impact the commerciality of the project in our view”.

The RBS bank analyst points out that his valuation, which informs his ‘buy’ recommendation and 380 price target for the share, assumes a 250 million barrel development and it also incorporates a conservative view of both capital and operating expenditure.

The RBS analyst added: “If ongoing work continues to support the potential of Sea Lion (current mid-case of 325mmbbls recoverable) and the exploration upside on the licence then we simply don't believe that it will lie dormant because of political and/or development risk when attractive upstream opportunities are growing scarcer.”

RBS is currently one of the several part-nationalised UK banks as a consequence of the 2008/09 financial crisis. The latest results from RBS, which were broadly in line, however failed to provide any support for the bank. Broker Nomura upped its rating for the group from “reduce” to “neutral” on valuation grounds and said it remained highly cautious on the group’s prospects.
 

Financial Tags: RKH.

Top Comments

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  • briton

    perhaps the oil companys will just have to expect to spend money to lay pipes from the falklands, pass st helena, up to the accensien isle, and on into the millhave depot, [just an idea]

    the oil termanal facilities in brazil or argentina, who think that they have the aces, , i.e. it will cause problems ,
    but perhaps the islanders may have to except that part of the island may well have to be turned into facilities to accomidate all this oil.
    just an idea,

    Aug 22nd, 2011 - 09:48 pm 0
  • Islander1

    Broton, you may not have been following events before- oil is unlikley to be piped onto the Falklands for shipping away or anywhere else by pipe - it will be shipped out using proven tecnolgy of FSPOs - basicakky a large tanker with a pumphead is stationed over the well and connects to the wellhead and crude is pumped up - them offloaded onto bulk tankers to take it anywhere in the world who buys it. Eventually when that well runs dry it is just capped and sealed and the FPSO moves to another.
    Anyway the S Times writer is incorrect- like so many journalists of many nations they dont check their facts! No Falkland Flagged ship has ever been to Brazil for decades and none have any need to! Brazils statement was a meaningless one just to give some verbal comfor the Argentina - it was clarifed in the bit Arg did not publish so muc whereby Brazil said it would of course not do anything that was aginst int maritme law - ie it would not refuse port entry to ships of say UK or any other flag. EG lots of foreign vessels with FI fishing licences now “layover” between seasons in Brazilian ports no problem
    Vessels carrying heavy supplies for the oil industry are simply chartered direct and do not touch anywhere in S America - they have no need to and Arg is not hindering anything.

    Aug 22nd, 2011 - 10:06 pm 0
  • Beef

    Yep, and Brazil is still the stopover for FI hound vessels with oil equipment. Like that beautiful flow testing kit. Argentina hold no cards over the FI, it is merely the joker in the pack!

    Aug 23rd, 2011 - 06:49 am 0
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