LONDON --Back in May, I took a look at the companies that are exploring for oil in the Falkland Islands and said that I expected further developments shortly. I'm happy to say that my forecast is coming true -- and the news could soon get much more exciting.
What has happened?
This morning, Rockhopper Exploration
Rockhopper is exploring the North Falkland Basin and is currently the only company to have found oil (not gas) in the Falkland Islands.
Rockhopper's 2011 Sea Lion find, in which small explorer Desire Petroleum also has an interest, contains 355 million barrels of 2C contingent resources -- translated, this means that the oil has been discovered but is not yet proven to be commercially viable. The exact amount of oil is a 50% estimate -- so it is equally likely to be more or less than 355 million barrels.
Cash up front
Following its Sea Lion find, Rockhopper could not fund any further development without a substantial partner -- and that's where Premier comes in.
Premier started out as a small oil explorer, but it has grown into a successful independent oil production company. It's a good example of the type of share highlighted in this free Fool report: "Ten Steps To Making A Million In The Market," which I recommend.
Premier will pay Rockhopper $231 million on completion of its 60% acquisition of Rockhopper's license interests. In addition, it will carry $722 million of Rockhopper's development costs for Sea Lion, plus $48 million of Rockhopper's future exploration costs for other joint ventures between the two.
A "carry" is when an oil company pays for its partner's costs up front in the expectation of recovering them from future oil and gas sales. So Premier expects to get its $722 million back, but there is no guarantee of this.
Not the first
Rockhopper is not the only company to have agreed to a farm-out deal for its Falkland interests. Falkland Oil & Gas
Drilling results due soon
The next major news should be the results of the second well being drilled by Borders & Southern Petroleum
Borders' first well, Darwin, contained gas but not oil, raising concerns over whether it would be commercially viable. Hopes will be high that the second well, Stebbing, will contain either a lot of gas or, better still, oil, which will increase the chance that the finds are commercially viable.
News from Stebbing is expected very soon, after which the drilling platform being used will start on FOG's first well. This will be in the Loligo prospect, which has mean prospective resources of 4.7 billion barrels of oil -- the biggest prospect in the Falklands.
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