Hedge funds have been quietly building up stakes in the oil explorers operating off the Falkland Islands betting that companies will ignore the threats made by Argentina to disrupt the activity, according to a Reuters’ piece published this week.
Lansdowne Partners, one of Europe's most powerful hedge funds, Crispin Odey's Odey Asset Management and Blackfish Capital, owned by the Rowland family, have all acquired stakes, regulatory filings show, as investors grow more excited over drilling prospects and a clear plan for the first oil field development off the Falklands.
One of the longer-time backers of the sector has been the RAB Special Situations fund, which owns more than 10% of Falkland Oil & Gas and which have 28% of its portfolio invested in the company. FOGL is valued at 200 million pounds based on current stock prices.
More recently Lansdowne Partners has gradually built up a 13% stake in Borders & Southern, making it the largest shareholder in the firm, which has a market value of 113 million pounds, with shares trading at 23.25 pence.
Meanwhile Odey raised its stake in Rockhopper Exploration, the most successful local explorer to date, to just over 7% in August, while in July Blackfish Capital, a subsidiary of Banque Havilland, bought a 20.13% stake in Falkland Islands Holdings, making it the biggest shareholder by some distance. Rockhopper is valued at 455 million pounds.
Falkland Islands Holdings, in which Mercury Asset Management's founding director and private investor Leonard Licht owns a 5.9% stake, according to Thomson Reuters data, has a 4% holding in FOGL.
The article also points out that three large companies have signed up to the region.
Veteran British firm Premier Oil last week completed its 1 billion dollars deal with Rockhopper to take a 60% stake and the operating role in developing Rockhopper's Sea Lion oil field situated about 120 kilometres off the north of the Falklands.
I don't want to sound flippant, but the oil industry deals with this type of political risk, of border disputes, of disputed territories all around the world, Premier's Finance director Tony Durrant told Reuters at the time of announcing the outline deal in July.
Meanwhile Borders & Southern in April discovered gas condensate, a naturally occurring mix of light liquid hydrocarbons, and FOGL found gas last month.
Borders & Southern and FOGL are both in a much more positive position than they were at the start of this drilling campaign (in January) after the really positive drilling results and the significant de-risking of the politics, said Mirabaud analyst Robin Haworth.
The arrival in the Falklands as partners of FOGL of two foreign industry heavyweights: Edison owned by France's EDF, and US firm Noble Energy has also helped put the Islands on the global oil map.
Falklands’ exploration has been de-risked politically from the perspective of other interested parties now joining the activities down there,” said Edison Investment Research analyst Ian McLelland.