Despite another round of diplomatic sabre-rattling by the Argentine government threatening legally questionable court action, the recent confirmation of major oil finds off the Falkland Islands by Edinburgh-registered Premier Oil could herald a the much-promised and long-awaited South Atlantic fossil-fuelled ‘gold rush’.
Around 1 billion barrels of oil are thought to be recoverable within an area no further than 200 nautical miles away from the two East and West Falkland islands. This would represent potentially the largest single hydrocarbons find within British territory anywhere outside the North Sea.
Earlier this month, the Falkland Islands Government welcomed the announcement by Premier Oil and partners that the 14/15b-5 ‘Zebedee’ exploration well has been declared an oil and gas discovery following the completion of its evaluation programme. Zebedee is the first well of the six-well drilling campaign planned to take place in Falkland Islands waters through 2015.
Stephen Luxton, Director of Mineral Resources at the Falkland Islands government (FIG) said: “We have been working closely with Premier Oil to take forward development of the Sea Lion field and look forward to the existing productive working relationship continuing through project sanction to first oil production.”
“Mobilisation for the forthcoming exploration programme commencing is already underway, and FIG has received the first submissions from operators seeking the required regulatory approvals to commence drilling. FIG continues to be committed to regulating offshore oil and gas exploration and production to North Sea standards for safety and environmental protection.”
Earlier this month Rockhopper – along with its partners Premier and Falkland Oil and Gas – found a 25 metre-thick seam of oil at their Zeberdee exploration well, just south of the initial Sea Lion find.
Rockhopper and its partners ship in all the materials that are required for drilling to Port Stanley from Europe’s oil capital – 8,000 miles northwards in Aberdeen. Even with the disadvantage of operating across such a vast distance, production costs are thought to be comparable to the North Sea at around $11-barrel.
“There aren’t that many untapped oil accumulations of this size left in the world and it is going to have to be developed,” said Sam Moody, Chief Executive of Rockhopper Exploration.
A major incentive – even in the current climate of low-crude oil prices of around $60-barrel (about half what it was at this time last year) is the low-tax regime of the Falkland Islands, where the government can set its own island tax rates independently of the UK Treasury in London. Corporation tax in the Falkland Islands is 26% compared with more than double that for North Sea operators.
Just 10 days ago, Rockhopper Exploration announced that it already agreed an ‘Extra-Statutory concession’ over capital gains tax deferment with the Falklands Islands Government over its farm-out deal to Premier Oil.
Sam Moody, CEO commented: “We are delighted to have reached this settlement with FIG under which we now have much greater certainty both on the quantum and timing of the deferred tax liability.
“Under the amended commercial arrangements with Premier we intend to access the full $48 million of Exploration Carry during the 2015 drilling campaign which should allow us to reduce the outstanding tax liability by up to £4.7 million (approximately $7.0 million).