Drilling returns to the Falklands
‘Exploration watch’ is a regular Edison publication focusing on upcoming 25 February 2015 exploration activity and the impact on notable E&Ps. In this inaugural edition, we look at the upcoming campaign in the North Falklands Basin where the first well, Zebedee, is due to spud in March 2015. This campaign,targeting c 350-600mmbbl, is often referred to as ‘exploration’; however, it includes a significant element of low-risk exploration together with an appraisal opportunity, especially for those looking to expand on the existing Sea Lion footprint. With Sea Lion development FID expected in 2016, appraisal and low-risk exploration elements of the upcoming Zebedee, Chatham and Jayne East wells could all add high-value barrels to the existing 393mmboe of contingent resources identified to date. The biggest exploration targets, however, lie 40km to the south of Sea Lion where the Isobel/Elaine complex could be as big again as Sea Lion. The Falklands has seen no exploration drilling for over two years, so this campaign will be a welcome return for investors interested in what is still essentially a frontier region.
Appraisal and low-risk exploration included
The high-value barrels being targeted include the low-risk Zebedee fan (50mmbbl with CoS >50%) and the appraisal element of Chatham, where the absence of a gas cap could see 60mmbbl of oil added to Sea Lion resources. We consider that these targets could contribute around half of the potential value of the campaign to the operating companies. On the flip side, we have higher risk exploration. All four wells carry higher-risk exploration elements, especially deeper plays than those proven up to date at Sea Lion and its satellites. The biggest of these by some margin is Isobel Deep, which lies 40km to the south of Sea Lion with FOGL estimating an impressive 240mmbbl of resources for Isobel Deep and Isobel. With shallower stacked fans also prospective, it is not difficult to see how the surrounding Isobel/Elaine complex could be as big as Sea Lion, albeit we are many wells away from understanding this fully.
Greatest upside for FOGL and Rockhopper
Our ‘Exploration watch’ is largely focused on the rocks. However, we will also, where appropriate, try to link upcoming exploration activity with share price implications. For the upcoming North Falklands Basin campaign, investors in all three of the participating companies, Premier Oil, Rockhopper and FOGL, could be looking at significant upside. This is especially the case for those with stakes in the two juniors, which are being largely carried by Premier throughout the campaign. We estimate that EV/share on a risked basis for the coming campaign will match current share prices for both Rockhopper and FOGL, while for Premier holders the campaign still represents a sizeable 25% of the share price (and a substantial 70% of its 2015 exploration budget).
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