Falkland Oil And Gas: Extensive 3D Acquisition

With a working hydrocarbon system proven in the Southern Basin, Falkland Oil and Gas (FOGL.AIM) is now focused on identifying large oil prone prospects within the Mid Cretaceous Play. New reservoir and source rock maturity models have been developed, which, in conjunction with three separate 3D seismic surveys, will be used to identify suitable targets for the next drilling campaign. FOGL is in the enviable position of being fully funded for its three/four well drill programme in 2014-15 due to a healthy balance sheet and farm outs.


Oil prone areas to be targeted
Falkland Oil & Gas (FOGL) has developed a new model to identify oil prone areas in its acreage. Key to this has been an apparent varying geothermal gradient in the basin resulting in a model highlighting the presence of gas, gas/condensate and oil prospects across the licences. However, we note that this model has been generated from only four well data points, and so we believe it will continue to be modified as additional data points are gathered with the drilling of further wells.

Extensive 3D acquisition
While FOGL estimates that Loligo contains between 50-100tcf gas in place and Scotia 10tcf, recoverable resources cannot be evaluated until better quality sands can be found in the region. 3D seismic will be crucial to identifying good quality reservoir and as such three separate 3D acquisition programmes are planned with the first already underway over the mid-Cretaceous Diomedea fan. The programme has been beefed up in recent months, from an estimated cost of $30-40m in December 2012 to $60m today, reflecting the importance to FOGL and partner Noble in identifying material sized oil prone prospects with good reservoir.

Gas commercialisation
The company is investigating a range of LNG options in order to demonstrate the feasibility of developing any large recoverable gas volumes. We do not see this as an immediate concern to investors; however, this will come to the fore in the event that high recoverable volumes can be demonstrated.

Valuation: Trading below cash
FOGL continues to trade below cash and this is unlikely to change until a rig is contracted and the drilling programme is confirmed. An estimated current cash position of $220m, including Noble and Edison’s combined 2013 cash contribution of $45m, is expected to cover the costs of its current forward programme.

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