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Finding only 50 metres of “fairly poor quality” reservoir after drilling a depth of over 5,000 metres into the Atlantic Ocean was enough to send the shares of the well operator, Falkland Oil & Gas Limited (LSE:FOGL), into the deep.
The Scotia well, the second of the two-well programme performed by the AIM-listed oil and gas explorer for 2012, has cost the company nearly half of its market value on the London Stock Exchange today, after losing as much as 31.24 pence – or 49.5% of FOGL’s closing share price of 63 pence yesterday – at a volume of over 43 million shares by midday in London, in a clear manifestation of investors’ disappointment.
FOGL holds 40% interest in drilling the Scotia prospect, located some 315 kilometres away from the British Overseas Territory’s capital and about 114 kilometres from the company’s first well, Loligo, which encountered over 100 metres of gas bearing reservoir last September 2012.
Drilling Halt
Whilst strong gas shows were encountered in Scotia, according to FOGL, no hydrocarbon flowed through a wireline formation testing that indicated the reservoir has low permeability.
The well will be plugged and abandoned and the company will focus on the evaluation of the results of the two wells drilled this year to assist in defining the firm’s next exploration programme, FOGL’s plan revealed.
FOGL had already stated back in September that further drilling will commence in 2014, following further analysis of the results of the Loligo well.
A 3D seismic programme that will cover some 5,000 square kilometres of FOGL’s acreage in the Falkland Islands waters is now underway.
Confident in the Potential
Despite the odds, the firm’s Chief Executive, Tim Bushell, is not giving up on the potential of the South Atlantic basin, standing on the basis that the results of the Scotia prospect is only a fraction of the company’s wide acreage east of the tip of the South American continent.
“…We have drilled two encouraging wells, both of which found hydrocarbons… They reinforce our confidence in the potential of the basin,” he stated.
Some investors, however, did not share the same sentiment as FOGL shares were still down 46.8% to 33.50 pence by 13:30 PM GMT.
The only consolation the firm’s shareholders can bank on is the fact that the company’s cash balance stands at US$220 million following the culmination of the 2012 drilling campaign – twice more than FOGL’s current market value.
