MercoPress. South Atlantic News Agency

Falklands’ oil companies could be takeover targets, says financial report

Ocean Guardian is drilling at an average 116 meters peer day

United Kingdom oil and gas companies drilling near the Falklands Islands may become takeover targets this year, Deloitte & Touche LLP said in a report released Thursday in London.

Desire Petroleum, Borders & Southern Petroleum and Rockhopper Exploration, moved up in market value rankings for UK-listed independent production companies because they hold exploration acreage in the British Overseas Territory Falkland Islands.

“M&A is less difficult this year than last year,” said Ian Sperling-Tyler, co-head of oil and gas corporate finance at Deloitte. “The companies in the Falklands aren’t big enough to monetize those assets on their own. At some point, they’ll farm out or be acquired by a bigger company.”

Desire started the first exploratory drilling in Falkland Island waters since 1998 this week with the arrival of the Ocean Guardian oil rig. Argentina, which claims sovereignty over the Falklands this week garnered support from Latinamerican and Caribbean leaders at a regional summit and on Wednesday visited UN Secretary General Ban Ki-Moon to demand sovereignty talks and protest UK unilateral actions in the South Atlantic disputed waters.

Desire moved up 10 places last in the rankings of UK upstream companies to 14th place, and Borders & Southern broke into the top 25, Deloitte said.

Tullow Oil Plc. the U.K. explorer developing reserves in Uganda, and Cairn Energy Plc, which focuses on India, ranked first and second and accounted for 60% of the market capitalization of the top 25 companies, the report showed.

“There is a fairly strong pipeline of oil and gas companies looking to raise funds,” Sperling-Tyler said. “I would expect a lot of capital market activity in 2010”.

Desire’s Liz prospect has estimated resources of between 45 million and 783 million barrels, according to a report by Senergy Ltd. commissioned by the explorer. Falkland Oil’s Toroa prospect has estimated resources of between 380 million and 2.9 billion barrels, the company said in November.

However Ross McCracken from Platts, oil and gas information service was more cautious and pointed out that relatively little is known about the geology of the South Atlantic and undoubtedly “the new drilling campaign is high risk”.

The drill-bit of the 14,400 ton platform will descend through layers of sandstone and Lower Cretaceous rock beneath the seabed at an average of 116m a day with a target depth of 3.500 meters. Geologically, the area is not dissimilar to the North Sea and according to the companies involved if a discovery is made, the field could contain nearly millions of barrels of oil.

But independent analysis of the rock structures claim that the operation has only a slim chance of success — about 17%, to be precise.

“A commercial find is likely to send the share prices soaring, but the probability of such a find is fairly low. These are, after all, wildcat wells on almost virgin territory” said McCracken.