Falkland Oil and Gas (LON:FOGL) plummeted on London’s AIM market after it reported setbacks for its interests in both the Northern and the Southern license areas.
It will miss the drilling deadline in the northern license and it must go it alone in the southern license after its major partner BHP Billiton (LON:BLT, ASX:BHP) pulled out.
Shares dropped to an intra-day low at 115p and were last trading down 23% at 120p. The news also hit Borders and Southern Petroleum (LON:BOR), which holds a contiguous acreage, as its shares dropped by around 10%.
FOGL has not shared the fortunes of fellow Falkland oil explorers Rockhopper Exploration (LON:RKH) and Desire Petroleum (LON:DES) which have enjoyed relative success with the initial Liz joint venture well, and more importantly Rockhopper’s world-class Sea Lion oil discovery.
Most recently Rockhopper shares jumped from 333p to peak above 500p with the successful Sea Lion flow tests, similarly Desire spiked from 120p to over 180p on the result.
Argos Resources (LON:ARG), whose licenses are located in and around those of RKH and DES, has also benefited substantially from the uplift, with its earlier stage prospects grabbing investor attention.
In this morning’s statement, FOGL told investors that it is not likely to start its drilling programme in the northern area in 2010, due to a ‘tight rig market’. Consequently it has agreed a one-year extension to the license, which now expires in December 2011.
In the southern area, FOGL’s exploration partner BHP is set to pull out of the project, after the mining giant doesn’t want to enter the second phase of the southern licences - which commences on 3 December 2010.
FOGL has decided to go it alone and enter the second phase of the licences. The company must drill a single exploration well by December 2015, as part of Phase 2.
BHP’s 51% interest in the licenses will now revert to FOGL, who will subsequently own 100% and take up operatorship.
The partners drilled the unsuccessful Toroa exploration well in the summer. Toroa struck a heavy blow to investor confidence, as the well failed to unearth ‘any reservoired hydrocarbons’ from the prospect.
According to David Farrell, Evolution Securities’ oil and gas expert, the writing was on the wall for the joint venture after the well proved unsuccessful.
“After the Toroa failure this comes as little surprise, especially as we believe BHP farmed into FOGL’s licences because of the prospects in the north,” Farrell said.
Fox-Davies analyst Lionel Therond also took a dim view, and whilst he maintained his ‘buy’ rating the target price was cut to 250p.
“The extension of the licence is positive news but the confirmation that drilling operations will only start at the earliest in 2011, although not a surprise, is negative,” Therond said.
“Even more so is the withdrawal of BHP from the southern licence which seriously questions the prospectivity of the acreage, from an outsider’s perspective.”