The disputed Falklands Islands and their supposed wealth of oil have hit another bump in the road, as firm Falklands Oil & Gas abandons drilling the Scotia oil well.
Present in the south basin, the 40 percent interest holder Falklands Oil & Gas (FOGL) drilled the well to a depth of 5,555 meters. After disappointing results, FOGL abandoned drilling plans, calling this Scotia location a "fairly poor quality reservoir."
FOGL now plans to plug and abandon the well, which is expected to take approximately 10 days to complete. If this is successful, the firm says its cash balance after the 2012 drilling campaign will be approximately $220 million. However, as The Guardian notes, this has not gone unnoticed by investors, now the company's shares have slumped 46 percent. Merchant Securities said:
The immediate result is a disappointment as the well did not confirm the presence of oil or high quality reservoir. We are reducing our target price to 57.7p from 152.0p to reflect that the Scotia well results did not confirm a commercial discovery. We are changing our recommendation from buy to sell.
Falkslands Oil & Gas do not consider the project a total loss, however. The firm reports:
"Whilst reservoir quality at this particular location was poor, it should be recognised that the seismic amplitude anomaly that defines Scotia covers an area of approximately 350 square kilometres. As such, further technical work is required to assess just how representative this result is, and whether or not better quality reservoir may exist elsewhere within Scotia."
The oil company plans to continue working on evaluating source rock potential and the presence of hydrocarbons, as well as try to find good quality oil reservoirs. In addition, FOGL will be looking at "the potential commercialisation of gas and associated liquids," in the south and east Falklands basin.
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