UPDATE 1-Desire says report confirms Falklands potential

Fri Nov 23, 2012 3:09am EST

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LONDON Nov 23 (Reuters) - British oil explorer Desire Petroleum said the findings of a third person report confirmed the potential of its controversial discoveries offshore the Falklands.

The chance of commercial development at its Sea Lion complex in the North Falkland basin was estimated to be 80 percent, the report by energy consultancy Senergy found, although it was a much lower 25 percent for the gas condensate discovery at its Liz complex.

"This competent person's report confirms our view that the Desire licences have excellent remaining exploration potential," Desire's Chairman Stephen Phipps said on Friday.

Oil exploration by British companies in the area has sparked anger in Argentina, which claims sovereignty over the islands it knows as the Malvinas. It has called the drilling there 'illicit' and threatened legal action.

However, while many investors have shrugged off the geopolitical risk, bumping up the company valuations, some analysts have questioned the likely chance of commercial success of the finds, particularly given the high costs of extraction.

Gas condensate, which has also been found offshore the Falklands by Borders & Southern and Falkland Oil & Gas is especially tricky to extract and transport.

Desire said it now had 41 oil prospects and 4 gas prospects, 12 of which had best case prospective resources of over 100 million barrels of stock tank oil.

The company's priority was to attract further investment, Phipps said.

Fellow explorer Rockhopper signed up Premier Oil earlier this year to help it fund the costs of developing its own discovery at Sea Lion.

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