UK firm’s Falklands oil find sparks mix of hopes and fears
The Falkland Islands. Oil has been discovered off the southern coast. Photograph: MoD/EPA
A British company has struck oil in the Falkland Islands for the first time, threatening to ratchet up the diplomatic dispute with Argentina.
Islanders hope that the discovery will result in an oil bonanza, but environmentalists expressed concern for the region’s marine life in the wake of the Gulf of Mexico disaster in similar deepwater conditions.
Shares in Rockhopper, named after a native penguin, soared by 150% yesterday after it announced the find. Many among the islands’ population bought shares in the company, which was set up to drill for oil in the Falklands.
The find, on the day of the general election, comes almost 30 years after the victory in the Falklands conflict against Argentina that arguably helped Margaret Thatcher to get re-elected a year later.
Four companies have hired a drilling rig that is expected to drill eight wells in total this year around the islands, which have never produced oil. The first well, drilled in March, came up dry. Shell and Amerada Hess were among the companies that last explored the area in the late 1990s but pulled out because the results were disappointing and the low oil price did not make developing the fields worthwhile.
The Falklands government said that yesterday’s news was “very exciting”. Other companies involved in planned drilling also saw their share prices leap.
Rockhopper stressed that it was very early stages and it was too soon to assess how much oil existed in the reservoir which it had found, which lies about 137 miles off the north coast of the islands at a depth of 2,744 metres (9,000ft). Next week, tugs will tow the drilling rig to the islands’ southern coast to search for more oil.
Gavin Farquhar, energy and infrastructure partner at law firm McGrigors, who has advised the oil industry about the Falklands, said that the chances of more finds were high.
“It would be surprising to locate oil in one well and not to find more oil in other prospects in the area.”
Geologists estimate that up to 60bn barrels of oil and gas equivalent could lie in the Atlantic waters, which would put the region on a par with the North Sea. But reaching the oil – and transporting it thousands of miles by tanker to market – is much more challenging. The waters around the Falklands reach depths of more than 3,000m, much deeper than the Gulf of Mexico waters where the BP rig Deepwater Horizon sank.
Local environmentalists warned that development of the hydrocarbon resources could disrupt marine life. The Falklands are home to 80% of the world’s black-browed albatrosses, 30% of its south rockhopper penguins and 20% of its gentoo penguins.
Craig Dockrill is chief executive of Falkands Conservation, which lists 100 families on the islands as members as well as 600 families of former military personnel or of those who used to live there. He said that their big concern was that migratory and feeding patterns of thousands of species of birds and marine animals were still not fully known.
He said that companies should be required to carry out thorough environmental assessments of the area in which they wanted to operate, ideally before they started drilling.
“The recent events in the Gulf of Mexico have highlighted awareness and concerns of our members and people,” he said. “If oil and gas development are going to go ahead it needs to be done in an environmentally sensitive way.”
Greenpeace said that companies should not be allowed to operate in such deep-water areas at all. Campaigner Paul Horsman contrasted the UK’s more liberal approach to drilling in the Falklands with that of President Barack Obama and California governor Arnold Schwarzenegger, who have pulled plans to open up new areas for offshore drilling in the wake of the Deepwater Horizon disaster.
A spokeswoman for the Falklands government did not return calls, but industry sources said that safety standards would be similar to those in the North Sea. What is certain is that if more oil is found, Big Oil – companies like BP and Shell with the pockets and expertise to develop it – will plant their flags on the Falklands.
Argentinian reaction
Argentines reacted with groans of dismay today to reports of the first oil discovery by British firms drilling in Falkland Islands waters. The announcement was expected to reignite protests from President Cristina Kirchner’s government.
“You will probably see some rhetorical flares and maybe another spike in diplomatic tension,” said Daniel Kerner, an analyst with the Eurasia Group consulting firm.
A report about the announcement in La Nacion, Argentina’s leading newspaper, prompted anguished reader comments. “They continue robbing us from under our noses,” said one. “After a war, the winner imposes the conditions,” said another.
Argentina lost a brief 1982 war with Britain over islands it calls the Malvinas. It still claims sovereignty and terms British control an occupation.
The prospect of “black gold” enriching the windswept archipelago has rubbed salt in the wound. Geologists say there could be up to 60bn barrels, a bonanza which would transform the 2,900 islanders into oil barons. But there is a question mark over how much will prove commercially viable, said Kerner. “I wouldn’t draw too many conclusions over Rockhopper’s announcement. There are still doubts.”
The Gulf of Mexico oil spill has aggravated concerns about the risk oil extraction would pose to the south Atlantic. Environmentalists have warned of oil slicks coating penguins and polluting the shores of the Mar del Plata beach resort.
Relations between London and Buenos Aires soured in February over the arrival of a rig, the Ocean Guardian, which started offshore drilling for oil and gas deposits.
Argentina declared controls on shipping and blocked a cargo vessel, the Thor Leader, from leaving a port over suspicion its cargo of Argentine-made seamless tubes would be used for drilling.
It won the backing of Latin American leaders over its demand for sovereignty talks with Britain and lobbied Ban Ki-moon, the UN secretary general.
British and Falkland officials played down the protests as posturing. Relations are at their lowest ebb since 1982 but both sides have ruled out military confrontation.
A possible Conservative government is unlikely to change relations. Argentines have bitter memories of Margaret Thatcher’s administration, but hold little love for Labour since Tony Blair and Gordon Brownit facilitated drilling.
Rory Carroll Latin America correspondent
http://www.guardian.co.uk/uk/2010/may/06/falklands-oil-discovery-rockhopper
