Falklands Oil: A MATTER OF TIMING AND RISK
By J. Brock (FINN)
With the OPEC meeting finished and a small reduction of 700,000 barrels a day driving the price of Brent crude down to over $29.00 a barrel . The hoped for decrease of 1 to 5 million barrels a day did not materialise and this is why the price per barrel remains exceptionally high. One might say that, though different, the effects of an oil price that is too high have the same result as an oil price per barrel that is too low: economic downturns in various areas. The memory of prices that plummeted to the minus $10.00 per barrel mark are too fresh in Falklands memories and it is no wonder that questions are being asked about future exploration when the prices are so high. Now with OPEC trying to cool things down, investors in the North Falkland Basin are asking why are there no oil rigs searching for an area with the second best source rock in the world. This was a question I put to the Director of Mineral Resources, Mrs. Phyl Rendell (PR).
PR: It?s certainly making companies more confident about spending money on exploration but I think it?s still early days. We really were hit hard at the end of 1998/99 when oil was only reaching under $10.00 a barrel. And, even though it spiralled up to $30 for Brent Crude last week, I think oil companies still want stability of oil prices, probably not quite as high as that but a stable price of $20 to $23 a barrel over a period of time and then I think they will be looking at investing again in not a relatively high risk area around the Falklands.
FINN: What is the state of play now with the Department?s ?open door? policy in licencing?
PR We are still on track, looking at producing that later this year but we still have some draft legislation to finalise. And we still, out of courtesy, will be talking to the Argentines about the fact that we are going to do it.
FINN: This policy has been touted publicly for some time now? Why haven?t you been talking to them?
PR: We haven?t yet had the opportunity for a meeting with their government but we are hopeful we will have one soon.
FINN: You had said earlier that you hoped the meeting would take place at the end of July. Is that date in the ball park?
PR: Yes. We are hopeful that the meeting will take place in mid to late July.
FINN: Where are the Commission reference the Special Area of Co-operation? Are they any nearer to having a licencing round for this area?
PR: We haven?t progressed the Special Area and joint licencing for some time because of the changes in government in Argentina. Obviously new governments are high priorities to have to deal with so we are hopeful that the agreed dates for the meeting will be in the not too distant future then we can pick up where we left off last year in the Special Co-operation Area and move that forward again.
FINN: Is one of the problems of getting things going in the special area one of environmental concerns? As long as two years ago studies showed that an accident in that area would badly effect Falklands wildlife?
PR: Dr. Richards addressed an environmental conference in London on an environmental theme and he was giving background to oil exploration in an environmental context. I think we have always understood that any exploration to the south-west would have an impact in the Falklands were it to go wrong. We therefore do need to do environmental research work in that area before any licencing can take place. We do know about it and have some facts about the currents and tides in that region.
It is obvious that in the Special Area of Co-operation timing will have to be spot-on, especially when the environment is concerned. Having parallel sets of environmental research and procedures that can be implemented is no easy task to complete. Legislation also has to be exact and far reaching on both sides. All of this has to be done in the face of fluctuating oil prices: high one year, low the next, and longed for stability in prices always just around the corner.
Many people have invested heavily in the North Falkland Basin. Those investments have high potential, as Dr. Richards pointed out last October at a public meeting when he described the quality of the source rock in the North Falkland Basin. No matter how good the source rock there is, risks of exploration in a frontier area are high. Perhaps with all of the hard work that goes into making the laws, safety regulations and environmental policies, we have forgotten how remote the Falklands are and the logistical problems encountered in getting here, let alone bringing a rig down from waters just off Brazil.
Those who have invested have something valuable and they need to hang on through thick and thin. Hopefully, no one invested their rent money and thinks that there will be a quick return. When it finally does come, it will be a good one.
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