MercoPress. South Atlantic News Agency

Desire Petroleum plans extra well in Falklands and makes £ 20 million share-issue

Up to ten wells could be drilled offshore Falklands this summer

Desire Petroleum, which is focused on the North Falkland Basin announced Wednesday it is proposing a share issue to raise £20 million to make use of the full potential of its hydrocarbons exploratory drilling season scheduled to begin next February when the “Ocean Guardian” rig arrives.

Desire has recently raised £40.2 million, net of expenses, through the Placing of 60 million new Ordinary Shares. These funds, together with Desire's other cash resources, will enable Desire to drill at least four wells. Surplus funds, including funds raised pursuant to the Open Offer, may be used to test any successful wells or drill further wells, points out a company release.

The share issue expects to raise gross proceeds of £20.3 million (approximately £19.9 million net of expenses) through the issue of up to 28,971,544 New Ordinary Shares by way of an Open Offer at a price of 70 pence per New Ordinary Share.

The Issue Price represents a discount of approximately 21.1% to the Closing Price of 88.75 pence per Share on 8 December 2009 (being the last Business Day prior to the announcement of the Open Offer).

Two other oil companies operating in the Falklands, Arcadia Petroleum Limited (in Desire blocks) and Rockhopper Exploration Plc (outside of Desire blocks) are expected to drill two wells on their own accounts which could mean that eight of the ten potential well slots have been accounted for.

A report by Senergy (GB) Ltd identifies fourteen different play types in the North Falkland Basin, eight in the north and six in the south. Desire’s Board believes that as many different play types as possible should be drilled to unlock the full potential of the North Falkland Basin and accordingly, depending on the total amount subscribed under the Open Offer, Desire would intend to use the net proceeds to drill one further well out of the two remaining option wells and/or have the flexibility to test successful wells.

The Directors currently estimate that the costs of an additional well are in the region of 20 million US dollars and that testing operations would cost approximately 15 million USD per test.

Last 10 September 2009 Desire signed a Letter of Intent with Diamond Offshore Drilling (UK) Limited for the drilling unit the Ocean Guardian. The contract was formally signed on 1 October 2009.

The terms of the contract are for a four well, minimum eighty day campaign. However Desire has secured options to drill a further six wells for itself or its partners. Following a program of scheduled shipyard work the rig mobilised from North Sea waters in late November 2009 and the first well is expected to spud in the North Falkland Basin in early February 2010.

The securing of the Ocean Guardian on competitive terms led the Directors to believe that they should take every advantage of the rig being in Falkland waters to drill as many different play types as possible. Fourteen different play types have been identified in the North Falkland Basin of which only three have been drilled to date.

Prudent exploration dictates that as many of these plays as possible should be drilled to help unlock the potential of the basin. To this end Desire announced its intention to raise additional funds to enable the Company to drill more wells.

Following discussions with its advisers it was decided to conduct a two stage fundraising process consisting of a placing of £42 million (60,000,000 new Ordinary Shares) to enable the Company to commit to drilling and testing two additional wells (amounting to four in total) to allow for certainty of funds prior to rig mobilisation.

The second phase consists of the Open Offer for up to £20.3 million (up to 28,971,544 new Ordinary Shares) to allow all Shareholders to participate in the fundraising process.