Keep the Faith: Best advice to North Falklands Basin investors
By J. Brock, Falkland Island News Network
25 October 1998
Recently there have been some very disappointing events in the North Falklands Basin and those who have a good deal of their hard earned cash invested in oil stocks are now feeling a bit like a faith healer with an incurable disease. The IPC exploratory well, which was being drilled in Tranche "F" by Borgny Dolphin was stopped well short of its expected depth.
The North Falklands Basin has a lot of potential: Source Rock, Sandstone, Good Structures and on two exploratory wells, minor hydrocarbon indicators and indications of hydrocarbons at various levels. After having drilled four wells, this is an excellent result. There are few minor drawbacks in that in some areas the structures are badly fractured and on one reported occasion an exploratory well drilled through volcanic rock.
Those in the oil business who are "in the know" express the hope that the North Falklands Basin could potentially be as big an oil province as the North Sea. Indeed, the trade papers made a meal out of that hope and gave each Falklander $7.5Million to play around with. However, it is that kind of hope that only makes you smile when your ship is going down.
Truth say, even though we have estimated the size of the reserves, we still do not know how much oil is actually in the North Falklands Basin. The frustrating aspect for all investors is that there can be no answers to some real hard questions until we actually strike oil in commercial quantities. To find any oil in those kinds of quantities will take a lot more than just ten exploratory wells.
So, if there is such great potential, why is the exploratory programme stopping after 10 wells? Firstly, entities participating in exploratory drilling in the North Falklands Basin are obligated to drill only two exploratory wells. This is the main answer but other factors figure into the equation.
One only has to digest the business output on radio and on television to discover that world-wide, economic growth is slowing down and there is mounting talk of recession. Indeed, most analysts will say that approximately 40% of the world's markets are already in recession. This means less money for businesses and that includes the oil biz. In the smaller oil companies there is precious little or no money at all for exploration. Larger companies, like Shell, are tightening their belts and looking for value for money by selling off less profitable oil wells and fields and have just recently, announced the closing of their London Office. To this scenario, we add the exceptionally low price per barrel of crude and it means less money to spend on exploration and a lower priority for the North Falklands Basin to get those exploration Dollars. Exploratory money will be spent more on areas where the risks involved in finding oil are better.
For investors this could spell disaster only if they lose heart and sell off stock that one day could be worth a lot of money. The North Falklands Basin story reads a little like the Biblical parable of the pearl of great price.
Just because oil in viable commercial quantities has not been found, yet, in the North Falklands Basin, it doesn't mean it is not there. Investors need to "keep the faith" and tough it out during some very uncertain times. It's not only the price per barrel rising that will bring those exploratory companies back but it is also the advances in exploratory technology that are about to take place. These advances are not revolutionary but are improvements on what is already available. It is the combination of the Faith, first of all, that the oil is there, hope that technology will advance far enough to make exploratory drilling more efficient and cost-effective and finally that intuitive love of the business which all serious investors possess.
Hang in there.
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