MercoPress. South Atlantic News Agency

Oil industry forecasts consolidation of Falklands' offshore companies

Consolidation among the four major players in the upstream oil and gas exploration sector in the South Atlantic off of the Falkland Islands is likely in the short-term, reported this week the Financial Times.

The four main players in the region presently are Desire Petroleum, Rockhopper Exploration, Borders and Southern Petroleum and Falklands Oil and Gas Limited (FOGL). Apparently industry sources believe that all these companies were unlikely to be able to finance exploration work far into the drilling stage without significant external funding. This could be achieved by sales of equity stakes in certain assets and issuing new shares. However, given the amount of money needed to finance large-scale exploration leading to production, some form of consolidation among these four juniors was virtually inevitable. The lease of an exploration rig can cost over half a million US dollars per day, and currently very few are available. "I think it will be interesting to see how the situation develops for the smaller exploration firms operating out of the Falkland Islands. Everyone in the industry wants them to succeed as they see them as the last great pioneers working the unknown" Financial Times quotes an industry source. FOGL announced to the London Stock Exchange earlier this week that it was in sales talks with a "resources major" regarding the sale of an equity stake of one of its assets in the region. A source close to the company said that he believed this particular sale did not involve a wider sale of the company, and that he was unaware of any consolidation talks taking place at this time. However, the source did say that the economics of the situation made "some kind of long-term consolidation among the four logical". The Financial Times also quotes a source within Rockhopper saying that the company was unable to proceed to the drilling phase without additional financing, but that it had not held any consolidation talks itself. One of the industry sources said the four would be "in trouble" if there was not some form of consolidation. "They are small companies and all running out of cash, some form of consolidation is inevitable," the source said, adding this consolidation would likely start within the next six months. Some of the potential acquirers of the region according to the Financial Times article include BHP Billiton, Royal Dutch Shell, Hydro and ConocoPhillips, but none was confirmed.