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UK government dismisses threats over Falkands oil exploration

Britain has rejected claims by Argentine officials that exploration activities of a group of London-listed oil firms are “illegal and clandestine”.
UK government dismisses threats over Falkands oil exploration

Britain has hit back at briefings by Argentine officials that have ramped up tensions over oil exploration off the Falkland Islands. 

Sources at the Argentine embassy claimed investors backing firms active in this disputed part of the South Atlantic did not fully appreciate the risks they are taking. 

It is part of a long-running dispute over the sovereignty of the islands that has ratcheted up since the discovery of crude in South Atlantic. 

Argentina classes the exploration activities of a group of the London listed oil firms as “illegal and clandestine”.

However the assertion, which emerged from an embassy briefing by the Argentineans, was greeted with a robust response from Foreign and Commonwealth Office (FCO).

“It is not for us to comment on Argentine domestic legislation. Despite Argentine threats and incorrect information, Falkland Islands hydrocarbons exploration is a legitimate business which the UK government fully supports," a spokesperson said.

"A number of companies have carried out exploratory drilling and are moving closer towards production.

"The Argentine government is attempting to deter legitimate commercial activity around the Falklands, but this has not succeeded and will not succeed.”

The exploration campaign began with Rockhopper Exploration (LON:RKH),  Desire Petroleum (LON:DES), Argos Resources (LON:ARG), Borders & Southern (LON:BORS) and Falkland Oil & Gas (LON:FOGL).

At a briefing at the residence of the Argentine ambassador in London, embassy staff said that Argentina continues to pursue legal action against the companies working under the exploration licences, which were issued in the 1990s by the British authorities.

The plan to pursue this course of action was announced by Argentina in March 2012. The process has thus far involved sending letters, which remain unanswered, to the oil explorers and the next step in this process will be the drafting of a criminal complaint.

According to sources at the embassy this could happen next year.

Argentina's plans to pursue legal action have, however, been met with a robust response from the UK authorities.

Argentina also claims that investors in the London listed explorers do not properly appreciate the risks relating to the sovereignty dispute.

A glance across the share price graphs of the explorers, however, indicate that it is the risks inherent in any exploration venture that are taking precedence for investors - after all, any 'top down' ownership dispute would be rendered moot by dry or uneconomic holes.

The first phase of exploration drilling, which started in February 2010, unearthed one commercial oil discovery, though the results from other wells were mixed, with some gas condensate discoveries and dry holes.

Now, following a period of recuperation, analysis and reflection the explorers are making preparations for the next drill campaign, which according to some predictions could get underway next year or in 2015.

Key to this next phase are ongoing 'farm out' or partnering processes whereby the junior exploration companies are seeking to bring in larger partners to help fund and develop projects.

This has already seen Premier Oil, EDF and Noble Energy join the campaign.

Argentina has, however, warned that companies involved with the exploration of the dispute areas would be banned from operating within Argentina.  As such, the embassy source believes it would be very difficult for the group of junior explorers to attract major partners.

Chevron's recent deal to partner state backed YPF to explore share gas in Patagonia and Exxon's existing operations in Argentina would preclude their involvement.

Rockhopper Exploration, Desire Petroleum, Argos Resources, Borders & Southern (LON:BOR) and Falkland Oil and Gas declined to comment on the matter.

According to the FCO, the activities of these five companies are  wholly legitimate and legal and are in strict accordance with the United Nations Convention of the Law of the Sea.

The FCO spokesperson said: “Hydrocarbons activities by any company operating on the continental shelf of the Falkland Islands are regulated by legislation of the Falkland Islands Government, in strict accordance with the United Nations Convention of the Law of the Sea. As such these activities are wholly legitimate and legal.

“The UK government unequivocally supports the right of the Falkland Islanders to develop their natural resources for their own economic benefit.   

“This right is an integral part of their right of self-determination, which is expressly contained in the International Covenant on Civil and Political Rights.

 “Argentine domestic law does not apply to the Falkland Islands or South Georgia and the South Sandwich Islands, which are UK overseas territories.”

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November 13 2014

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