MercoPress. South Atlantic News Agency

Desire Petroleum closer to begin drilling in Falklands

Current licenced Tranches and Prospects

AIM listed Desire Petroleum Plc. announced on Thursday that a formal farm-out agreement has been entered into with Arcadia Petroleum Ltd following the approval of the Falkland Islands Government.

Desire and Arcadia were also granted new acreage near Desire's existing acreage in Tranche I, in the North Falkland Basin. The main result of the agreement is that it opens the potential for the drilling of four wells in the near future: two by Arcadia and two which Desire had undertaken previously. Arcadia is a UK private, integrated, upstream and downstream, international, energy business which is in the process of building a world-wide portfolio of high-quality, de-risked, exploration and production assets in frontier and semi-frontier areas. "The Board of Desire very much welcomes the opportunity to work with Arcadia, whose exploration philosophy fits extremely well with our own. We look forward to a long and successful partnership with Arcadia", said Stephen Phipps Desire chairman. From the Falklands' capital Stanley, Director of Mineral Resources Phyl Rendell welcomed the agreement saying "it's another step forward in a very long process; we've got to congratulate Desire on finding a new partner to work with to get a bit closer to drilling wells." According to the terms of the arrangement in Tranche C, Arcadia will drill and test the Ann prospect paying 85% of the costs to earn a 35% interest in a sub-area of the same tranche covering the Ann and Orca South prospects. Rockhopper Exploration plc, as part of a larger transaction, is responsible for paying the remaining 15% of the Ann well costs to earn a 7.5% interest in Tranches C and D. Accordingly, the net result to Desire will be a 57.5% interest in the Ann prospect for which the Desire misestimate of potential recoverable reserves is 202 million barrels of oil. Following AVO studies in 2007 Desire now estimates the chance of success on this prospect at 50%, which is the chance of the prospect containing hydrocarbons. In Tranche I Arcadia will drill and test a major new prospect named Alpha, paying 100% of the costs to earn 50% in Block 25/10 and part of Block 25/15. This prospect also extends into the newly awarded Blocks 25/8, 25/9 and 25/14b where Arcadia has an 80% interest and Desire 20%. Based on the current mapping, Desire estimates that it has an approximately 30% interest in the total Alpha prospect. Alpha is a large, well-defined, structural closure, covering an area of over 300 square kilometres. It is associated with a very strong AVO anomaly which in addition to significantly de-risking the prospect, suggests that the reservoir is gas charged. Desire's mid-estimate for the potential recoverable reserves for Alpha is 7.8 trillion cubic feet (Tcf) with 15 Tcf in the upside case. These volumes are considered more than adequate for a commercial gas development in the event of a discovery. Arcadia will also pay the mobilisation and demobilisation costs associated with the two wells. In addition to the two wells to be drilled by Arcadia, Desire has undertaken to drill two wells for its own account including the mobilisation and demobilisation costs associated with these two wells. Desire will remain as operator on all the acreage Arcadia has joined them in. The majority of the prospects in the Desire inventory are still held 100% by Desire and with the funds currently available and at current rig rates Desire should be able to drill two wells on its own account. "With our new partner on board we are now in a far stronger position to pursue actively all available rig opportunities for drilling our prospects. We are excited about the new exploration gas play and the large potential of the Alpha prospect" said Desire chairman Stephen Phipps.