UPDATE 2-Desire plunges on unsuccesful Falklands well

Mon Apr 18, 2011 7:05am EDT

Related Topics

* Says Ninky to be plugged and abandoned

* Remaining funds insufficient to drill another well

* Falkland Islands still viable as oil province - analyst

* Desire shares crash 56 pct, Rockhopper down 5.3 pct (Adds detail, background, analyst comment, share price)

By Sarah Young

LONDON, April 18 (Reuters) - British oil explorer Desire Petroleum DES.L said it had not found oil at its latest well in the Falkland Islands and would need further funds for future drilling, wiping over half the value off its shares.

Desire's disappointing well result is a further blow for the company as it comes on the back of a string of unsuccessful results, but it should not dent the remote British territory's chances of becoming a new oil province, say analysts.

"Today's news doesn't have any decisive impact on the Falkland Islands as a whole, in terms of their viability as a petroleum province but it raises issues specifically for Desire," said Mirabaud Securities analyst Alex Martinos.

Shares in AIM-listed Desire crashed 56 percent to 17.75 pence at 1045 GMT, their lowest level since 2004, topping the list of fallers in London.

A large discovery made by British oil explorer Rockhopper (RKH.L) at its Sea Lion well in the Falklands in 2010 has raised hopes that a new hydrocarbon basin will be opened up, but so far no further finds have been made.

Exploration in the Falklands has sparked protests from Argentina, which claims sovereignty over the Islands it calls the Malvinas and which lie 300 miles from its shore.

INSUFFICIENT FUNDS

Desire said while its latest well, named Ninky, had oil shows and found a thin zone of oil, the oil was in a poor quality reservoir and consequently the well will be plugged and abandoned.

Desire said remaining funds of $37 million would not stretch to pay for another well.

"Given our continuing confidence that oil will be discovered on Desire's acreage, further wells will need to be drilled," said Desire's chairman Stephen Phipps in a statement on Monday.

"We will review all financing options available with the intention of rejoining the drilling campaign later in the year if possible."

Any future fundraising would likely be very dilutive, said Martinos.

"Given the current funding position and the fact that they're going to have to come back to the market and say OK we drilled six wells and none of them were successful but can you give us some more money, I think shareholders, if they are going to back that with further equity finance, are going to want a pretty sizeable slug of whatever's left and therefore it would be very dilutive," he said.

Shares in Rockhopper, which owns a 7.5 percent stake in the licence where Ninky was drilled, were down 5.3 percent to 236.5 pence at 1045 GMT.

Rockhopper said the rig will now move back to its acreage and drill three more wells, the first of which to assess flow rates on its Sea Lion discovery. (Editing by Lorraine Turner and Jon Loades-Carter) ($1=.6111 Pound)

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