Falklands oil explorer Borders & Southern to reach turning point in 2012, says broker

This year will be a turning point for Falklands oil explorer Borders & Southern (LON:BORS), according to broker Panmure Gordon.

This point will come as the deep water Leiv Eiriksson rig arrives in the south Falkland basin for a pivotal drill programme.

Panmure analyst Leila Reddy described Borders as ‘an attractive exploration value proposition in one the world’s few remaining unexplored fold belts’.

Panmure has a ‘buy’ recommendation for the stock with a 116p pre-drill target price.

“It (Borders & Southern) is backed by the size of its acreage and, importantly, the quality and scale of its prospects with two fully funded ready-to-drill prospects, Darwin and Stebbing,” she added.

The first well in the in the programme will target the Darwin prospect. It will be spudded in the first quarter of the year. The outcome of these wells will be key steps towards de-risking the frontier South Falkland basin, according to Reddy.

The two prospects are estimated to contain prospective resources of 0.76 and 1.3 billion barrels of oil respectively. And Reddy believes these prospects could contribute to a substantial re-rating of the share price if the exploration wells are successful, especially if the findings increase the likelihood of them finding a ‘giant structure’. 

Additionally, the analyst points out that all will not be lost if the first well is unsuccessful.

“Since these two prospects are of different play types and independent of each other, they encompass an element of risk mitigation in the event of disappointing results on either one,” Reddy added.

Furthermore Borders also has ample cash for the drill programme, the analyst said. After it spends around US$150 million on the wells Reddy expects Borders will have around US$50 million left. This means it will be in a comfortable position to chart its way forward.

Once Borders is done with the Leiv Eiriksson rig it will move on to drill other nearby targets for fellow explorer Falkland Oil & Gas (LON:FOGL). The two companies are sharing the rig mobilisation costs both to and from the Falklands.

The plan is for FOGL to drill two wells starting in late April or early May, but more funds may need to be secured to fulfil some of its plan. The company has been in talks with potential farm-in partners and a deal is expected before it begins its work programme.

The firm previously had a partnership with BHP Billiton’s petroleum arm but the international resource group pulled out of that deal in 2009.

Analysts believe that positive drill results from the early wells, drilled by Borders, could help spark a deal and also support some kind of equity-based funding for FOGL.

The explorers precise drill plans and target selection will also be influenced by the findings of Borders’ initial wells.

All this activity marks a notable shift in focus in Falklands. Up until now the much of the spotlight has been on Rockhopper Exploration (LON:RKH) and Desire Petroleum (LON:DES). Their drill campaign in the North basin finally came to an end earlier this week as the Ocean Guardian rig left the Falklands.