Falklands Oil and the Art of Holding Your Breath

The history of what we do is paralleled in the best movies. The Westerns, Sci Fi and all that is daring-do. As I go around the world picking up more information about oil and gas exploration the more I admire those who started it all. One of the latest such roles of the dice is of course in the waters around the Falkland Islands.

Falkland Islands topographic map-en
By Eric Gaba (Sting – fr:Sting) [GFDL (http://www.gnu.org/copyleft/fdl.html
The evidence is that there is much to be gained from drilling in the South Atlantic. As always the environment is a challenge and as is often the case there are simmering disputes about legality and rights.

Currently we wait to see if the conditions are favourable to begin production of the estimated 1 billion barrels of oil that are down in the North Falklands Basin. The plan is to use Floating Production Storage Offloading (FPSO) to service the platforms, but of course the price of oil isn’t that good so how far back production will be pushed is at present not known. The fact is that the largest prospect in British territorial waters outside of the North Sea faces and an uphill battle get underway.

It truly is a case of holding your breath particularly, if you are an investor in the companies that have licences to search the frigid waters of the South Atlantic.

 

Geology of the Falkland Islands
Geology of the Falkland Islands By User:Sting*derivative work: Hogweard (Falkland Islands topographic map-en.svg) [GFDL (http://www.gnu.org/copyleft/fdl.html

Argentina and the Oil

Argentina orthographic
The Argentine nation in dark green with the areas they claim in light green. 300 miles east of its southern tip  is the Falkland Islands. By Addicted04 (Own work with Natural Earth Data) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
Many of our colleagues work in areas that are fraught with political wrangling and downright dangerous conflicts. Where the production sites in the Falkland Islands sit is not as day to day threatening as many places we work but it has had a volatile past. The uncertainty about future oil and gas exploration here is more to do with the global political considerations about the island’s sovereignty than in local pressure.

The islands were first charted by a British captain in 1690. They are inhabited by an independent people who claim British connections. They were given the opportunity to vote away from the UK and overwhelmingly voted to remain yet that doesn’t stop nearby Argentina from claiming rights to not only the islands but the people who live on them.

International law requires that in order for a country to absorb another, the people living there have to agree or at least the majority of them do. This process was most recently observed in the Scottish referendum. You didn’t have to be Scottish to vote, you had to be a resident of Scotland.

The alternative is to establish that the Falklands are a ‘stolen’ territory. In order to do that Argentina would have to show their prior claim and right in history. This claim is at best ambiguous and I will not go into the claims and counter claims, but the future of the islands is unlikely to see an Argentine flag flying over it.

In 1982 Argentina attempted to force the issue and this led to British military being deployed to oust them. Ever since force of arms has been a back seat option to political pressure and Argentina’s attempts to gain control have been relentless.

This effort has come in many forms, the most often used has been to block any major development of the islands, that includes oil. Significantly the Argentine government has got previous form for nationalising foreign oil assets based in their country. This is probably the reason that those daring to develop production 130 miles off the shores of the islands bring almost everything they need across the sea from Aberdeen.

In addition, it could well be why the operators are smaller than the norm. The big outfits could lose big if Argentina decided, through its courts, that oil exploration was illegal. The rule seems to be if you want to isolate yourself from Argentine action don’t put anything on the mainland you cannot afford to lose.

It also should be said that Argentina is not unsupported in their claim on the islands. Russia shows them sympathy as on occasions have other nations including the USA. The sticking point was and is the will of the people. In the late 1960s and again a decade after that the UK government was happy enough to walk if not run towards handing over the islands. This was never because they supported the Argentine claim more because the cost of servicing islands so far away was a heavy burden.

An Argentine airstrip was built in the 1970s and that prompted the islanders to strongly petition London not to negotiate a change in sovereignty.

diagram showing the various areas of the Falklands oil exploration
Daily Mail diagram of the North Falkland Basin.

The Upside, Tax Breaks

Some advantages do exist. For a start the tax is not levied by the UK but by the government in the island’s capital Port Stanley. We have seen this before in many parts of the world. The islands have some literally home grown revenue but  if the oil pays off their financial and even sovereign future could be assured so they want to encourage exploration. The overall tax paid on a barrel that does come out of the area is likely to be 34% lower than one that comes out of the North Sea.

Another plus is that though the neighbour might be annoyed the islands are not small. They can support increased onshore facilities and because of the history they have a very large British military presence to keep many of the threats that exist elsewhere at bay. The local economy and transport has come a long way since before the war and is a good base for future development.  Finally, unlike Nigeria and many places in the Middle-East, there is one government to deal with and no local rival factions to placate.

The Future of Falklands Oil

The reserves at 1 billion barrels are but a small amount when compared to to the North Sea’s 16 billion but it is an area worth a watch. Conditions are similar to those closer to home. The day to day obstacles have been closely likened to the North Sea albeit the geology is different. So if you hear that operators like Britain’s Rockhopper have begun production and work is scarce elsewhere – a long bus man’s holiday in the South Atlantic could be a reasonable consideration.

 

Brexit Might Present More Oil and Gas Opportunity Not Less

An interesting take on the future of the industry post Brexit makes for pleasant alternative reading. Below Rigzone editor, Jon Mainwaring, takes his own pre Brexit concerns and looks at the possibilities of turning the frown upside down.

There would be no offshore oil and gas without people in the past being told something can’t be done and then proving the critics wrong. When it comes to Brexit I don’t believe that anything short of time will tell. Meanwhile there does seem to be a shift from the well founded dread of the UK leaving the EU to a spirit of the industry coming through with the determination to make the best of it.

The relaxing of many reels of red tape and the possibility of easier access to skilled overseas labour is explored in this article in Rigzone.

Click here

Early Warning of Vital Skill Loss in Oil and Gas

A people who have no regard for their history are doomed to repeat the mistakes of the past. I grant you I am paraphrasing here but it is ever true. There is an early warning of skill loss following the downturn in oil prices and it is something we should take notice of.

Looking across the UK in a fruitless search for the industrial might of past dusty decades is depressing. Recent threats to the steel industry follow the final last rattles of coal production. Like a discount retailer’s favourite cry, ‘Once it is gone it is gone,’ the mine floods and the furnace goes offline.

Possibly the most undervalued resource left to decay, however, is the skill of the men and women who once knew how it all worked. Is it possible that the oil and gas industry might lose some of it’s people power never to be replaced?

a jigsaw puzzle missing piece.
It only takes a key missing piece to mess up a vision of the future

As far as the short term goes, no. In the long term though the cut backs in investment and dire clouds that hang over skilled workers are driving much need expertise away from offshore production.

In addition, a depressive outlook puts people off the idea of entering the industry in the first place. It would only take a few more years of this before those retiring outnumber those coming in. Traditional efficiency when it comes to training relies on experience being passed on, get an imbalance and it can take sustained effort to reverse a dramatic decline in skill.

The article below goes into the details more fully. I have to say looking at other industries we once took as solid and immune to the test of time, we should take notice of threatened skill shortages sooner rather than later.

Article:The Oil and Gas People 

Zion Oil and Gas Extension

It isn’t often that an oil and gas outfit places inspiration from the Bible on its website . Then again Zion Oil and Gas does what it says on the tin, it has a commitment to producing oil to make Israel independent regarding its energy needs. It is no great surprise, but still a little out of the mainstream because this is an American company.

They got the licences to explore and now have another year to make good on all the effort.

All the prep, geological and geophysical work, might now have paid off.  They claim there are many challenges to drilling in Israel that are not presented elsewhere. Mainly the country has not fully embraced the concept and is understandably cautious as to who does what and where inside their borders.

Meditereanian Map Showing Leviathan Gas Field
The current Leviathan Gas Field is in Red. Tamar Gas Field is to the North East of it.

One to watch for the future. The company talks freely about offshore exploration as well and if there is sufficient found then the investment would certainly follow to develop both oil and gas production. Let us be honest the Leviathan gas field and the reserves estimated in oil there is plenty of reason for hope of a big find. Of course there are many challenges  not least of which is the extreme depth that the resources are located.

Source Reuters: Click here

Zion Oil and Gas: Click here

More Militant Action Blights Niger Delta Oil

The conflict in the Niger Delta continues with groups not acknowledging the supposed truce. Reuters are reporting a pipeline has been attacked in Lasukugbene, Bayelsa state.

map of nigeria and the niger delta on a diagram of Africa
A volatile region that has lost oil production due to internal strife between the government and ethnic groups.

No-one has claimed responsibility for the action so far however the usual suspects, the Niger Delta Avengers, have the most recent history of such action. Some substance can be attributed to this as their spokespeople have said they cannot recall the truce that was arranged in late June.

Operators Nigerian Agip Oil Company, a subsidiary of the Italian Eni corporation have made no comment. Oil production is now down to a 30 year low in the region because of the ongoing dispute between oil companies, Nigerian government and the ethnic people of the Delta.

Source: Reuters. Click here

 

Tambar Field Extended by Six Years

Early reports that the Tambar field is being given another 6 years of life. Located in the southern Norwegian area it is one of three fields making up the UGT area. First discovered in 1983 the Ula field along with the Gyda field make up the rest of the area.

Tambar came online in 2001 and has a large confirmed oil supply which is processed in Teeside, UK. Operators are Dong Norge and BP. Source: Energy Voice. Click herema showing Southern Norwegian Tambar Field. South west