Last week, when the partnership of Rockhopper Exploration (LSE: RKH), Premier Oil (LSE: PMO) and Falkland Oil and Gas (LSE: FOGL) announced a new oil discovery at Isobel Deep in the North Falkland Basin, it surely brought profits from Falklands exploration a big step closer.
Exploration well 14/20-1 in the basin, about 40km south of the Sea Lion field, found oil at a depth of around 2,500 metres, and at a higher pressure than expected which caused an unexpected gush of oil for early analysis — so far it appears to be very similar to Sea Lion crude.
A billion barrels?
Coming on top of earlier discoveries at the Zebedee well, the new find is very exciting and has led analysts to estimate possible reserves of around 1 billion barrels of recoverable oil around the islands, with suggestions that the Sea Lion field could be producing 60,000 barrels per day within the next five years.
The CEOs of all three companies sounded understandably excited over the latest development, but there’s someone who won’t be too pleased — Argentine premier Cristina Fernández de Kirchner. Argentina has already tried to take legal action to stop oil drilling in waters it claims as its own, although International law so far appears to be set firmly against the South American nation.
The next few years are likely to be politically fraught, although it’s always hard to tell whether politicians are spouting off just to look good in front of their own citizens or if they genuinely harbour hope of success.
How to profit?
But what’s the best way to profit from Falklands oil? Well, at Rockhopper the price had been 38% down over 12 months, but a spike last week brought it back to 69p for just a 27% dip. Falkland Oil and Gas, meanwhile, has seen its shares gain 15% over a year to 30p.
Either would provide an investment more highly geared towards Falklands success, and even though there’s not going to be any profit for at least a couple of years, both look like reasonable punts to me right now.
Premier Oil, on the other hand, looks like a safer investment with globally diversified assets and with profit coming in, although at 163p the shares are on a forward P/E of 22.5.
A rosy future
Should you plump for any of these I expect you’ll be a very happy investor when Sea Lion production starts. But do keep your eyes peeled over the next few weeks while the three companies will be planning their next steps after they’ve fully evaluated the latest results.
