Company Background

Argos's subsidiary Argos Exploration (previously named Argos Evergreen Limited) was originally incorporated for the purpose of participating in a consortium, led by Amerada Hess, formed to apply for a petroleum production licence in the first licensing round announced by the Falkland Islands Government in 1995.

The consortium was awarded Production Licence PL001 by the Falkland Islands Government on 2 June 1997. The consortium acquired seismic and drilled two wells on the licence. Amerada Hess and the other group members, except Argos, subsequently withdrew from the licence leaving Argos with 100% equity.

Argos entered the second phase of its exploration licence in November 2008. This second of three exploration phases continues to November 24th, 2015. Upon entering the second phase of the licence the Company was required to relinquish 30% of the original licence area. The retained licence area in PL001 covers around 1,126 km2, equivalent to approximately 4 North Sea blocks.

The water depth over the licence is between 200m and 500m which is comfortably within the range of conventional drilling, development and production operations.

In the first phase of the licence, the Amerada Hess consortium acquired 1,416km of proprietary 2D seismic data and drilled two wells which were completed at the end of 1998. Whilst both wells had oil shows, neither were regarded as being commercial and were accordingly plugged and abandoned. There was, however, encouragement that a very high quality oil source rock had been encountered and that the oil generation process had commenced.

Following the completion of the drilling of its two wells and the completion of four additional exploration wells in the North Falkland Basin drilled by others, the Company undertook a thorough review of the data available. This post-drilling analysis led to a new geological model for the North Falkland Basin and indicated that significant oil potential remained untested in the Basin.

Seismic reprocessing and reinterpretation undertaken in 2009 and 2010 resulted in the identification of seven prospects (six structural and one stratigraphic) and five leads. The 3D seismic programme undertaken in 2011 was aimed at confirming these prospects and identifying further stratigraphic prospect potential within the licence.

The North Falkland Basin is a relatively underexplored area. The first seven exploration licences were awarded in 1996 with six wells drilled in the first drilling campaign in 1998. Four of these wells were drilled on valid structural features and demonstrated the presence of an active hydrocarbon system. Of the other two wells, one was drilled on a weak structure and the other did not reach the main objective

Summary of 1998 drilling programme

A new drilling programme in the North Falkland Basin commenced in 2009 utilising the Ocean Guardian semi-submersible rig . As of 1st October 2011, 14 new wells had been drilled. A significant oil discovery, the Sea Lion field, was announced by Rockhopper Exploration in May 2010 and 6 of the 14 wells drilled have been on Sea Lion to appraise that discovery. The discovery well, 14/10-2 encountered 53 m of net oil pay in multiple zones of good sands. A subsequent appraisal well tested oil at a stabilised rate of 5,508 barrels of oil per day. The Operator's latest Mid Case estimate of oil initially in place is 1,297 million barrels. Based upon the Operator's expected recovery factors of between 30 - 40%, this equates to a recoverable resource of between 389 - 517 million barrels of recoverable oil, subject to the recovery factor achieved. Of the remaining wells drilled on other prospects three encountered oil, gas and condensate shows, and one was a dry hole. Drilling operations continue in the basin.

This success of the Sea Lion discovery has transformed opinion on the attractiveness of the region. The discovery is within 3 kms of the Argos licence boundary.