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Falkland Oil & Gas Limited (LSE:FOGL) made its first gas discovery in the disputed waters of the South American territory that Argentina is claiming again, but hints of uncertainty sent the share price of the AIM-listed oil and gas explorer to a see-saw in dealings earlier today.
In a statement, FOGL said all six targets of the Loligo well previously identified indicated gas but the company cannot yet ascertain if it is dry or liquid-bearing.
The company also added that it was difficult to assess hydrocarbon saturation and the total net hydrocarbon bearing reservoir due to the thin bedded nature of the sediments encountered in the first three target intervals.
“Preliminary estimates however, suggest hydrocarbon saturations ranging from 40% to 60% and net hydrocarbon bearing reservoir of between 10 and 20 metres,” FOGL said of the three target reservoirs.
The two other remaining targets showed 46 metres and 59 metres of net hydrocarbon bearing reservoir, with porosities ranging between 23% and 30% and averaging 24% at a saturation of 40% and 75%.
Premature
Some investors did not take the announcement too well right after it was announced and FOGL shares were at one point down 10% during the first 30 minutes on the Alternative Investment Market – and for good reason.
Drilling over 4,000 metres 200 kilometres off the coast east of the Falkland Islands is quite a feat only to find over a hundred metres of hydrocarbon bearing reservoir.
It did not help that FOGL, along with its partner, Edison International, decided to plug and abandon the well after determining it is “premature” to drill a second well at the previously approved location.
The company said they would perform a detailed analysis of the well first before continuing drilling the prospect.
Shares went slipped back to -1.8% to 69 pence again at 9:15 AM GMT after moving up as much as 73 pence earlier, as investors were still trying to decide if it the news is good or bad.
Last Monday,10th September, market speculations triggered the drop in FOGL share price that made the company issue a statement by 1:00 PM that the drilling was five days behind schedule, which did not quite explain why the shares plunged as low as 56 pence that day. Shares closed 25.62% down to 67.25 pence from 90.75 pence on Friday, 7th September.
FOGL’s announcement of a gas discovery today seemed to have explained last week’s drop, as the company originally hoped for four billion barrels of oil to be encountered.
According to analysts, a gas discovery in this part of the world has to be huge enough to merit a commercial development as there are no infrastructure yet to perform processing and the nearest country that can provide a site is again trying to assert sovereignty on the area, which caused friction with the UK Government very recently.
Tim Bushell, FOGL’s Chief Executive, himself acknowledged a work programme will have to be undertaken to further assess the resource potential and commercial viability of the discovery. But that statement also implied the discovery is not yet commercial in volume, at least at this point.
At 11:30 GMT, shares were up 0.4% to 70.5 pence, as mixed sentiments are received from investors.
