MercoPress. South Atlantic News Agency

Falklands’ B&S Petroleum confirms 197m dollars to drill two wells in Jan/Feb

The Leiv Eirikson rig is currently working in Greenland said CEO Howard Obee

Falkland Islands oil and gas explorer Borders & Southern Petroleum has swung into the black, just months before it embarks on its drilling program in the South Falkland Basin. The company posted pre-tax profits of 761.211 dollars in the six months ended June 30, compared to a loss of 672.185 in 2010.

With a cash balance of 197 million dollars at the period-end, Borders & Southern says it has sufficient funds to complete its two well drilling program which it hopes to start in mid-January.

Plans are to drill the Darwin prospect first, which boasts an estimated recoverable resource of 300 to 760 million barrels, followed by Stebbing, which has an estimated recoverable resource of 710 to 1,280 million barrels.

The two prospects are geologically independent of one another, so success or failure with the first well has no impact on the second, said a company spokesperson.

CEO Howard Obee said “the project plan is on track and the logistics team is making good progress with mobilizing equipment and supplies”.

An office has been set up in the Falklands and the supply base will be ready by the end of November and it anticipates drilling will start in mid-January”.

Analysts at Numis Securities point out that deep water Falklands’ oil explorer Border & Southern is a high risk high reward exploration play but the group’s current valuation means the potential reward outweigh the risks.

”It is expected that investors will begin to focus more on the planned deep-water Falklands oil exploration, as the potentially high impact drill campaign looms on the horizon”, said Numis.

However the timing of the drill program is likely to depend on the progress made by Cairn Energy in Greenland – where the Leiv Eirikson rig is currently contracted.

While the upcoming drilling is likely to be a source of excitement for investors, Numis analyst Sanjeev Bahl believes the current share price has been depressed by a disappointing outcome in one of Repsol’s well’s in Argentine waters.

“In our view, the company’s share price has been negatively impacted by investor risk aversion and a dry hole drilled by Repsol (July 2011) to the west of the company's acreage, in Argentine waters,” Bahl said in a note to clients.

“We are currently anticipating a mid January start date for drilling, although this is still somewhat fluid due to the uncertainty of when the Leiv Eiriksson will finish its current operations in Greenland” said CEO Obee, adding that once the rig has left Greenland and has made good progress on its voyage to the Falklands, an announcement will be made with a more accurate estimate for the spud date of the first well.

B&S combined two-well program is estimated to last approximately 90 days. The rig will then drill two wells for Falkland Oil and Gas. The two companies are working closely together by sharing resources where possible to deliver cost savings for both companies.

CEO Obee also pointed out that the 197 million dollars cash balance includes gains recorded as a result of currency movements. “The funds are held in sterling and dollar treasury deposits with two UK based banks, whilst the cash balance is net of payments already made on the long lead items such as casing and well heads, the majority of the pre-drilling expenditures are yet to be reflected in the accounts”.

Capital costs have started and will continue to accelerate in the second half of the year as the rig gets closer to being on location. Based on current cost estimates, the Company believes it has sufficient funds to complete its two well drilling programme with contingency.

B&S has five Production Licences (100% interest) in the South Falkland Basin covering an area of nearly 20.000 square kilometres and the company has acquired 2,862 km of 2D seismic and 1,492 sq km of 3D seismic.