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An international Oil and Gas Exploration production business with its first project being 5 oil and gas exploration licences covering approximately 20000 square kilometers of the Falklands Plateau sub-basin southeast of the Falkland Islands
Borders & Southern finds gas rather than oil in Falklands well; shares slide
April 23 2012, 10:07am
Investors in Borders & Southern (LON:BOR) today suffered mixed reactions as the firm announced a new discovery in the Falklands.
The deep-water explorer has discovered gas condensate, otherwise known as ‘wet’ gas, in the Darwin well. Borders says it is a large and simple structure that is likely to contain ‘significant’ volumes of gas.
The Darwin result is something of a disappointment for investors hoping for an oil discovery. While more economically attractive than ‘dry’ gas, a condensate development still requires more extensive and sophisticated infrastructure in comparison to an oil project.
A resulting wave of profit taking saw the shares drop around 30 per cent in early deals on AIM. This comes after the stock doubled in value last week as investors anticipated a positive result.
“Borders share price has seen a massive increase over the past week in anticipation of a positive result from this well. We feel that the market will be disappointed by the fact that Darwin is not an oil discovery,” Seymour Pierce analyst Dr Dougie Youngson said in a note to clients.
“Commercialisation of a gas asset will be very difficult with liquefied natural gas (LNG) being the only real possibility given the limited size of a domestic gas market on the Falkland Islands.”
Youngson says at least 5 trillion cubic feet of gas would have to be found in the Falklands to support a LNG project on the Islands.
At the moment Borders says it is too early to accurately estimate the size of the gas resource discovered in the Darwin prospect.
But it explained that the discovery is a large and simple structure, measuring 26 kilometres on seismic, and it is likely to contain significant volumes of gas.
Further analysis will provide more details regarding the gas composition (i.e. the ratio between gas and condensate) and the potential size of the resource.
Charlie Sharp, Canaccord Genuity analyst, says there is clearly much to do to understand the liquids content.
He explains that it will take several months to understand and extrapolate the well’s findings across associated prospects and in the meantime he says the market can only speculate on the possibility of Darwin becoming a commercial discovery.
“What is certain is that the company will seek to expand its exploration campaign (perhaps this year, but certainly next) and will likely need to appraise the Darwin East discovery,” Sharp said in a note to clients.
“That would imply that additional financing will be required. Investors may want to wait for that, or at least greater clarity on the find.”
The Darwin well was drilled to a depth of 4,876 metres. And it encountered a porous sandstone reservoir containing hydrocarbons.
Hyrdocarbon shows were recorded from a depth of 4,633 metres down to 4,810 metres. The main reservoir was found to be 84.5 metres thick, with 67.8 metres net pay. The interval had an average porosity of 22 per cent.
Samples have been taken from the reservoir for analysis. Borders said it will be able to comment on the liquid content of the reservoir once the analysis is complete.
Borders’ chief Howard Obee this morning said: "We're delighted to have made a discovery with the company's first exploration well and to have opened up a new hydrocarbon basin,” said chief executive Howard Obee.
“There is clearly a lot of work ahead of us to understand the size and value of the discovery, but it is a great start and the potential of the basin is exciting.”
Borders will now move on to complete wireline logging on the Darwin well before it is plugged and abandoned.
Subsequently the rig will move onto the second well in the programme, which will test the Stebbing prospect. After that the rig moves onto a nearby two well programme in Falkland Oil & Gas’ (LON:FOGL) acreage.
Stebbing is also now more likely to be a gas prospect, according to Merchant Securities analyst Brendan Long.
“The presence of condensate confirms that the South Falkland basin is condusive to the generation of liquid hydrocarbons,” he said in a note to clients.
“However, due to the close proximity of the Darwin and Stebbing prospects we believe that the probability of finding gas condensate at Stebbing has increased and the possibility of finding black oil has decreased.
“The read across for Falkland Oil & Gas us somewhat more positive to the extent that the larger scale prospects would make a LNG project more viable. We also note that FOGL has prospects which are deeper into the area that is conducive to oil generation.”
On AIM this morning Borders shares were down 40.5p, or 31 per cent, trading at 90.25p each. Meanwhile FOGL shares had dropped slight losing just 1.5p, or 1.6 per cent, to trade at 92.25p, each.
