Three oil explorers drilling in the Falkland Islands, including Houston based Noble Energy have shelved plans to drill a second well in the south and east Falklands following the steep drop in oil prices, one of the partners said on Monday. Partners, which also include London-listed Falkland Oil and Gas (FOGL) and Edison International, said they would continue drilling in other parts of the region.
We believe that disciplined capital management is crucial in the current oil price environment and this decision leaves FOGL in a stronger financial position, said FOGL Chief Executive Tim Bushell.
Oil explorers across the globe have scrapped expensive drilling work to rein in costs on the back of a steep decline in oil prices and instead focus on projects that will bring more immediate returns.
Analysts at Stifel saw the news as positive for FOGL as it deemed the second well in the southern basin as one of the most expensive ones in the company's five-well drilling campaign. Wells in the northern basin which are not so expensive are estimated to have a cost ranging 50 million dollars each.
The move mitigates FOGL's previously somewhat precarious funding position, they said in a research note.
The three venture partners, together with UK Premier Oil and Rockhopper Exploration are currently drilling a second well at Isobel Deep, north of the Falklands, following the success of the Eirik Rude sub-submersible exploration platform at the Zebedee well which discovered oil and gas on 2 April.
FOGL and partners, Rockhopper and Premier Oil, said the Zebedee exploration well was “better than expected” with an oil reservoir 25 meters thick and a gas deposit 17.5m thick sandwiched between sands.
The next prospect to be drilled is Humpback, to the south east of the Falklands, said FOGL.
In a simultaneous move, FOGL's partners Noble Energy and Edison International on Monday purchased a licence, named Rhea, in the North Falkland Basin from Argos Resources for 2.75 million dollars in cash.
The Falkland Islands are a resource-rich area in the southern Atlantic and a number of oil companies are currently exploring for oil in the area. However, drilling in the region remains controversial as tensions between Britain and Argentina remain high over the sovereignty of the Falklands.
In its official release, FOGL said that the venture partners have concluded that the optimum course of action is to defer the drilling of a second well in the southern basin. In these circumstances FOGL was amenable to a proposal from Noble, that in order to fulfill the drilling commitment, they should utilize the contracted drilling slot to drill a well in the North Falklands Basin.
Thus the revised drilling program will mean the joint venture partners have more time to fully assess the Humpback results, and given encouragement, plan further exploration and appraisal wells; can potentially take advantage of lower future drilling costs; will be able to complete the technical assessment of the Scharnhorst and Starfish prospects and determine whether they are suitable future drilling targets in light of the Humpback results, and it will also result in FOGL being in a stronger financial position at the end of the current drilling program.
Following the agreement, the revised drilling schedule is as follows: Zebedee, north Falkland, which resulted successful, with FOGL holding a 40.0% interest; Premier Oil 36% and Rockhopper 24%.
Isobel Deep, currently in progress, north Falkland with FOGL holding 40.0% interest; Premier Oil, 36% and Rockhopper 24%.
Humpback to the South and East of the Falklands; FOGL holds 52.5% interest and drilling should commence in May. Finally, Jayne East, Chatham and Rhea, in the north Falkland basin.
CEO Bushell said that the alternative plan for the exploration of the South and East Falklands basins, provides more time to fully utilize the extensive 3D seismic dataset, assimilate the results of the Humpback well and take advantage of the lower rig and services costs that may prevail.