Desire Petroleum (LON:DES) shares shot up almost 30% in early deals as a mega deal involving four Falkland oil firms reignited investor interest in the once hailed oil frontier.
Not so long ago investors flocked to a group of explorers and what was supposed to be transformational phase of exploration drilling.
Many wells and just a couple of discoveries later investor interest had ebbed away.
But, deals announced on Thursday put the high profile – and in some quarters controversial – oil frontier back in the spotlight as it paves the way for a fresh round of exploration drilling.
The first leg of the deal sees the recommended all-share takeover of Desire Petroleum (LON:DES) by Falkland Oil & Gas (LON:FOGL).
At the same time Premier Oil (LON:PMO) and Rockhopper (LON:RKH), the joint developers of the Sea Lion field - thus far the Falklands’ only commercially viable oil discovery – have agreed to team up with the soon-to-be-merged group.
Together they will drill two wells, one each on the Isobel/Elaine and the Jayne East prospects, which will target combined ‘in-place’ targets of 1.07bn barrels of oil.
Premier and Rockhopper will pay for the drilling in return for a joint interest of 52.5% in Isobel/Elaine and 35% of Jayne East. The Desire/FOGL entity will retain 40% of each project.
In addition to the two ‘farm-in’ wells, three more wells are planned.
Once merged, the new firm also intends to drill the Zebedee prospect in the North basin, as well as participating in two wells in the South basin, alongside existing joint venture partners Noble Energy and Edison International.
The share-based deal will see Desire shareholders receive 0.6233 FOGL shares for each Desire share they own, which, at Wednesday’s closing prices values Desire at £61mln or 17.76p per share.
Together the companies will have cash of about £100mln (US$170mln), versus a combined market cap of about £140mln (US$230mln).
It will be a substantially larger oil explorer, with key assets in the deep-water South Falkland basin and the shallower water North Falkland play. Both areas have been drilled with mixed success in recent years.
It will own an interest in discoveries connected to the Sea Lion field, as well as prospects de-risked by drilling in the South basin.
“We are entering an extremely exciting period in the Falklands with shareholders in the combined group now having fully funded, material exposure to five wells across three basins, testing three different play types," Desire chairman Stephen Phipps said.
FOGL chief executive (and nominated chief executive of the enlarged group) Tim Bushell added: “This combination is a compelling opportunity to consolidate the portfolios of FOGL and Desire, diversifying the risk profile for both companies' shareholders and enabling the combined group to move forward with an active, long-term programme for growth in the Falkland Islands.
“Specifically, this transaction provides FOGL with access to Desire's interests in the North Falkland Basin (including the Sea Lion area) which we believe are highly complementary to our existing exploration portfolio in the South.
“The farm-out to Premier and Rockhopper, which will reduce the combined group's working interests in PL004a and PL004c to 40 per cent, is a prudent piece of portfolio management and allows us to participate in a more extensive exploration programme due to the drilling carry we have agreed, while retaining control through operatorship until both wells have been drilled.
“FOGL is in a strong financial position and these transactions will enhance the company's opportunity set and offer new and exciting potential opportunities to deploy capital and create value for both companies' shareholders."