Falkland Oil and Gas raises £48.5 mln ahead of pivotal drill programme

Falkland Oil and Gas (LON:FOGL) told investors that it will raise £48.5 million through a share placing.

The funding means that FOGL will be able to carry out its preferred drilling programme in the Falklands. 

It will now be able to drill its first well, which will target the Loligo prospect, deeper to test additional targets and with the second well it will be able to target the Scotia prospect.

The previous plan was to drill a shallower well at Loligo and drill either the Nimrod or Vinson prospects with the second well, but the additional funds mean that FOGL has the financial flexibility to test its preferred choice, the Scotia prospect. This is a mid cretaceous fan prospect that’s estimated to contain 1 billion barrels of oil.

"We are delighted by this show of support from new and existing shareholders,” said chief executive Tim Bushell.

“The additional funds will significantly increase our flexibility over the forthcoming drilling programme expected to start in early May with the drilling of Loligo.” 

The firm had been looking at possible options to sell some of its stake in its exploration assets but FOGL said it doesn’t expect to receive a suitable offer within the necessary timeframe. 

FOGL will issue around 112 million new shares, about 50 per cent of its share capital prior to the funding, to new and existing investors in the company. The placing price of 43p represents a 14 per cent discount to yesterday’s closing price.

While the terms of the placing are quite dilutive the money does significantly enhance the drill programme.

The Loligo well will now be able to test three deeper reservoir targets which, according to FOGL, contain about 54 per cent of the prospect’s total resource potential. These are independent reservoir objectives – Trigg, Trigg Deep and Three Bears.

In total the entire Loligo prospect has been assessed to have a prospective resource of 4.7 billion barrels, FOGL said.

There is now greater flexibility for the company as it finalises its strategy for its second well. 

The company says that while Scotia is the preferred choice for the second well, drilling results in the meantime may lead to a further change in plan, in which it would appraise Loligo further. Alternatively it could still decide to test the Nimrod, Vinson or indeed another prospect.

The Leiv Eiriksson deepwater drilling rig is expected to arrive in the Falklands during the next 10 days, FOGL said. It is first contracted to fellow explorer Borders and Southern (LON:BORS) for a two well programme, testing the Darwin and Stebbing prospects – estimated at 0.76 and 1.3 billion barrels of oil respectively.

FOGL says it may consider using its second drilling slot to test a prospect called Inflexible should Borders’ Darwin well prove successful.