Tensions ease as oil explorer shelves Falklands drilling plans
Falkland Oil and Gas (FOGL) took the sting out of political tensions between London and Buenos Aires yesterday as it shelved plans to expand activities in the region.
The Aim-listed company said it was ditching its proposed second well in the South Falkland basin, following the steep drop in prices since the summer.
Although FOGL said it would continue drilling in other parts of the region, its decision is expected to ease tensions in the week after the Argentine government threatened legal action against three British and two American companies for “carrying out exploration activities for fossil fuels on the Argentine continental shelf without obtaining corresponding authorisation”.
FOGL, Noble Energy and Edison International were among those involved in the legal action. The oil price has tumbled from $115 a barrel last summer to around $59, as a surge in US shale production has pushed the global supply into surplus.
Tim Bushell, FOGL chief executive, said the three companies “remain fully committed to exploration in the South and East basin and still firmly believe in its prospectivity.”
He said the decision to postpone the second well was reached “havingtaken account of a number of factors” – including the low oil price.
“We are very satisfied with this alternative plan for the exploration of the South and East Falkland basins, which provides more time to … assimilate the results of the [existing] Humpback well,” Mr Bushell said.
“The board of FOGL considers that the actions taken are in the best interests of shareholders. We believe that discipli-ned capital management is crucial in the current oil price environment and this decision leaves FOGL in a stronger financial position.”
Shares in FOGL rose as much as 4.3 per cent yesterday, before ending the day up flat at 29p.
Oil companies around the world are slashing investment as the price looks set to remain at subdued levels for several years. Tens of thousands of jobs are expected to be lost in the North Sea as a result of the falling oil price, with Shell and BP among the companies shedding hundreds of jobs apiece.
Shell recently pounced on BG Group, buying the former exploration arm of British Gas for £47bn – after the falling oil price dragged BG’s shares down in recent months.
Last week, the Argentine foreign ministry summoned the British ambassador to complain about reports that Britain spied on Argentina between 2006 and 2011, amid renewed fears of a Falkland Islands invasion. The ministry also threatened to prosecute oil companies working in the waters off the Falklands.