Enjoy the relative calm before the diplomatic storm while it lasts. It may have slipped from the front pages of late, but rest assured you have not heard the last of the international dispute surrounding the involvement of the oil and gas industry in the Falklands Islands (known as 'Las Malvinas' in South America).
With the 30th anniversary of the start of the 1982 Falklands War now having come and gone and with the ongoing sovereignty dispute over the Islands between Great Britain and Argentina moving away from the press conference and into the courtrooms, the focus of attention is back down to the business of oil once more.
A key date to mark down in the diary for anyone with an interest in the oil industry's progress in the Islands is the year 2017. That is the date that Falklands-focused explorers Premier Oil and Rockhopper Exploration have pencilled in for 'first oil' to be successfully pumped from the disputed Islands. While the extent of oil and gas reserves around the Islands remains open to wildly differing projections, given the limited deep-sea drilling to date and the difficult remote conditions, news of a potential start to drilling practices will likely bring political tension to a new head as the date of first oil draws nearer.
The continued development of the Island's energy reserves (which some estimates put as high as 8.3 billion barrels) remain one of the key drivers of increased tensions between the two nations. At present Argentina stands to gain very little financially from their exploitation, at a time when the national government would welcome with open arms an injection of oil wealth into the state's depleted coffers.
Given the potentially large untapped reserves on offer, it is no wonder that industry investment in the region has been steadily rising. In 2011 alone, UK independent Rockhopper splashed out US$129.7 million on exploration activity. But it has not been in vain. Given that the explorer recently announced that its Sea Lion discovery - which holds (depending upon estimates) a minimum of 844 million barrels of oil and a maximum of 1.43 billion barrels of oil - is commercial, the find suggests that the money invested to-date has been spent wisely. The discovery is also estimated to have a peak production potential of 80,000-90,000 barrels per day (bpd), prompting Rockhopper to set out a US$2 billion plan to bring Falklands oil to market within five years. More recently, however, Rockhopper moved to bring in a joint venture (JV) partner to help with work at the Field.
So in July 2012, and at the risk of deepening the rift between the two nations at a very sensitive time for the Islands, the firm inked a US$1 billion deal with UK upstream independent player Premier Oil, with the latter taking a 60% stake in the development of the North Falkland Basin prospect.
While the bulk of activity related to the development phase at the Sea Lion prospect is unlikely to begin until 2015, Premier Oil's Chief Executive Officer, Simon Lockett, is hoping that they will begin drilling ahead of schedule. Lockett was also quick to point out that this is no short-term oil play: 'In 2017 when we are producing oil there will be on-going activity probably from the next 20-30 years from the field development itself.'
In terms of the plans for the prospect, there will be in in excess of 30 wells to produce the field itself. Those wells will all be tied back through pipelines to transport the waxy crude to a big floating production storage and offloading vessel (FPSO), basically a big ship with all the equipment on it to be able to do it.
The timing of Premier Oil's introduction into a JV partnership with Rockhopper was certainly of interest: it was announced only a matter of weeks after the two countries clashed over the Falklands issue at the G20 summit in Los Cabos, Mexico. Downing Street's public support of Premier's involvement in the Sea Lion prospect reaffirmed the Foreign Office's view that hydrocarbons exploration in the area is a legitimate business. The intended purpose of this, of course, is to extend the invitation for other overseas oil players to enter into the Falklands oil and gas arena in partnership with the UK-listed independents already operating there.
And this already appears to have started paying dividends. Indeed, a further boost to exploration in the Falklands came in the form of US independent Noble Energy's introduction into concessions held by Falkland Oil and Gas (FOGL). Noble is to farm-in to several of FOGL's offshore licences in the contested territory.
The agreement will no doubt prove to be a boon for FOGL, with Noble investing US$180-200 million over the next three years in helping develop its new interests in the region.
So, what does Buenos Aires make of all this? Well, as you would expect, President Cristina Fern?ndez de Kirchner's administration is far from amused by the recent developments. The start of drilling in the sea bed around the Falklands, and news of the first commercial oil find has angered the South American nation, who has once more aimed for the courts in an attempt to hold-up what it considers to be illegitimate and illegal actions. Legally speaking Argentina does have a valid point: the start of the drilling campaigns in the South Atlantic during the summer of 2009 by Rockhopper and fellow AIM-listed explorers Desire Petroleum and FOGL went against international laws, as the submission of two competing territorial claims under Article 76 of the 1994 UNCLOS theoretically prevents either nation from exploiting the contested seabed until a diplomatic agreement is reached. The exchange of claim and counter-claim has, however, done little to-date to hold up proceeds.
The Fern?ndez government has not given up on asserting heightened diplomatic pressure either. Indeed, Buenos Aires has increased regional pressure to economically isolate Falklands residents. Meanwhile internationally, Argentina has increased its efforts abroad to gain recognition of its claims to the territory, although this seems to have largely fallen on deaf ears.
Such moves culminated in a filing of a formal complaint with the United Nations (UN) Security Council and General Assembly against British militarisation around the Falkland Islands on the grounds that it will pose a great threat to global security.
Like we said, enjoy the relative calm before the diplomatic storm while it lasts!
Source: http://feedproxy.google.com/~r/OilvoiceHeadlines/~3/9wX2sTC8qDM/f439d1a46c4b.aspx
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