* Well spudded despite protests
* Explorers' shares rise
* Spat will complicate exploitation of reserves
By Tom Bergin
LONDON, Feb 22 Drilling on the first oil well in
the Falkland Islands in over a decade started on Monday, despite
protests from Argentina, which claims the British territory.
Explorer Desire Petroleum DES.L said it spudded - or broke
ground - at a well on its offshore "Liz" prospect at 1415 GMT.
Liz could contain reserves of up to 400 million barrels,
analysts said, although the risk of hitting nothing was also
seen as high.
The run-up to drilling in the Falklands led to rising
tensions between Britain and Argentina, which went to war over
them in 1982.
Argentina said earlier this month the exploration was
illegal, and blocked the loading of pipes on to a ship which it
said had operated in the Falklands, known as Las Malvinas in
The British government has protested to Argentina over a
law passed in December that includes the disputed islands within
the Argentine province of Tierra del Fuego.
The sea around the Falklands could contain up to 17 billion
barrels of oil and 51 trillion cubic feet, or 9 billion barrels
of oil equivalent, of gas, according to a report in 2000 by the
U.S. Geological Survey.
However, the last flurry of excitement about an oil rush on
the islands was killed by disappointing drilling results in
1998. Oil prices of $10/barrel at the time also contributed to
the view the islands did not have commercially viable reserves.
Higher oil prices and advances in drilling technology have
spurred optimism in recent years.
Nonetheless, after their failure in 1998, the big oil
companies, such as Royal Dutch Shell (RDSa.L), have not
The companies currently involved are all small explorers,
either privately owned or listed on London's junior AIM market.
Only one major international company, Anglo-Australian miner
and oil producer BHP Billiton (BHP.AX), is active in the area.
The dispute with Buenos Aires over sovereignty is expected
to make exploitation of any oil found more expensive than
otherwise since supplies and equipment cannot be imported from
Argentina, which has its own oil and gas industry.
The spat also means any gas discoveries will need to be very
large to be commercially viable as the island's population of
around 2,500 is a limited market and the gas cannot be piped to
Only if a gas discovery was very large would it justify the
construction of a liquefied natural gas (LNG) terminal from
which the gas could be exported in pressurised ships.
LNG facilities cost billions of dollars to build.
Shares in Desire jumped almost 10 percent in early trade, on
expectation of the announcement, before easing back to trade up
3.6 percent at 1556 GMT.
Shares in its partner in the blocks, Rockhopper Exploration
(RKH.L), traded up 7 percent, while Falklands Oil and Gas
FOGL.L and Borders & Southern (BSTH.L), which are also
exploring in the area, rose 5 percent and 3 percent
Seven wells in the seas around the islands are planned for
Analysts said poor results would likely kill interest in
exploration in the area for many years, not least because most
of the companies involved only have enough cash to pay for the
current drilling programmes.
(Editing by David Cowell)