MercoPress. South Atlantic News Agency

Oil in Falklands but not in commercial volumes, reports The Times

The exploration rig Ocean Guardian operating to the north of the Falklands

The first well drilled off the Falkland Islands in 12 years has struck oil — but not enough for a commercial well, according to a report from the Sunday edition of The Times.

Desire Petroleum, the UK explorer that contracted the exploration rig “Ocean Guardian” is expected to announce the disappointing findings this week, according to industry sources.

The Times speculates the news could defuse the political row that erupted between London and Buenos Aires after a group of British oil exploration companies led by Desire Petroleum announced plans to drill wells in the territorial waters of the Falklands which are claimed by Argentina.

President Cristina Kirchner claimed the campaign violated its national sovereignty. Hillary Clinton, US secretary of state, declined to side with Britain and suggested that the matter be referred to the UN.

Desire is expected to say that the well drilled at its Liz prospect was “technically successful”, meaning it found oil, but that it is “non-commercial”, meaning that there was not enough oil to justify developing the field.

According to The Times, the company declined to comment. Sources close to the situation said it had not finished drilling, but the signs were not encouraging.

A source said: “It’s not a duster [a dry well], but it’s not commercially successful.” Desire has been working on the well for the past month.

Its disappointment is not the end of the Falklands oil story. Desire is one of four UK-listed firms that have raised £250 million from investors in recent months to fund an exploration spree around the islands.

Rockhopper Exploration will drill its Sea Lion prospect next month. That will be followed by one well from Falkland Oil and Gas, before Rockhopper takes the rig back to drill another.

Falkland Oil and Gas has linked up with BHP Billiton, the Anglo-Australian group that is one of the world’s largest miners.

Borders & Southern, the other British firm, is further behind because its acreage in the deeper waters south of the islands requires a different type of rig — the other fields are in the north.

Desire’s news is likely to depress its share price, and those of its Falklands-focused rivals. The firm has stakes in several other blocks that are expected to be drilled in the next 18 months.

Twelve years ago several companies, including Shell Oil, drilled wells but with similar limited success: not enough oil or gas for commercial exploitations.

At the time also, 1998, international oil prices plunged to 10 US dollars a barrel definitively discouraging any further exploration.