Falklands Oil 2012

28 Dec

As the 53,000-tonne Leiv Eiriksson deepwater drilling rig works is way slowly down the Atlantic towards the Falkland Islands, speculation continues over the viability of oil finds near the archipelago in light of the more belligerent tone being adopted by Argentina.

The rig is contracted to Borders and Southern for the drilling of two exploratory wells in the licence areas, to the south of the Falklands, early next year. This  is a continuation of the exploration schedule which has been taking place over the last two years involving 15 wells, looking for the estimated 60 billion barrels of oil that some research suggests is there to be found. Four discoveries have been made so far, the largest of which is deemed ‘commercial’ by its finder, Rockhopper Exploration.

It is likely to be the next stage that presents the industry with it biggest headache. In a world where finance is difficult to come by, Rockhopper need substantial investment to convert their find into a flow, and the source of this is not yet clear. Some industry commentators believe that, if the discovery can be confirmed as large enough, then the big oil companies will want a slice, regardless of the sabre-rattling from South America.

Technically, there is no need to use the mainland as oil can be lifted to floating storage vessels and the shipped direct to the customers in North America, Europe or Asia.

Others believe that the disruption that could be caused by Argentina would be sufficient to raise costs to the point of making oil extraction unviable. Banks would be the biggest investors and they may be more concerned about established investments within the south cone, than they would be in helping a fledgling oil industry.

While the debate continues, the Islanders’ at least are already seeing the benefit. £10m of annual tax revenues have already cushioned them from the effects of the global recession, and has provided a surplus in their income over the last two years. The Falkland Islands Government are the driving force behind the exploration, not the British Government, and they are so used to their neighbours that a rise in the long standing rhetoric is unlikely to put them off.

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