The North Falkland Basin
The basin is relatively underexplored and continuing exploration drilling is expected to unlock the potential of this emerging oil province.
Drilling in 1998 encountered a world-class oil source rock across the northern part of the basin which analyses showed should be mature at depth for oil generation. The presence of a rich, mature source rock spurred continuing exploration and led to the discovery of the Sea Lion field in 2010. The operator of Sea Lion has stated its intention to develop the field, with first oil targeted in 2017. This will ensure the establishment of infrastructure which will, in turn, facilitate ongoing exploration drilling in the basin.
Resource estimates for Sea Lion are reported to be between 245 – 560 mmbo recoverable. 3D seismic has been key in identifying the Sea Lion prospect and this sizeable discovery has significantly de-risked the surrounding acreage. It is therefore reasonable to anticipate that additional discoveries will be made with the continuing application of 3D seismic.
It is believed that a second, deeper source rock, mature for gas, condensate and possibly light oil, is also present in the basin, adding further to its prospectivity.
Argos Resources was created in 1995 and was awarded Licence PL001 in 1996, one of the first licences to be awarded in the Falklands.
The Company participated in drilling two exploration wells on the Licence in 1998, both of which recorded oil shows but neither of which were commercial. Wells drilled by others at the same time also encountered both oil and gas shows. These results were sufficiently encouraging to indicate that further exploration in the basin would be worthwhile.
The application of 3D seismic as an exploration tool has proven decisive in revealing the prospectivity of the basin, leading to the discovery of the Sea Lion oil field in 2010, the Zebedee oil discovery in 2015 and the Isobel oil discovery in 2016.
In September 2015, the Company received approval from the Falkland Islands Government to enter into a Farmout Agreement with Noble Energy Falklands Limited and Edison International S.p.A. Under the Agreement, Noble and Edison committed to drill an exploration well in Licence PL001, at no cost to the Company, in return for earning an interest in the Licence. The drilling commitment entailed using the Eirik Raude deepwater drilling rig, which was operating in Falkland Islands waters at the time the Farmout Agreement was completed.
However, in February 2016 the Company received notification from Noble of an event of Force Majeure resulting in them being unable to drill an exploration well on the Licence using the Eirik Raude rig. It was also announced that a new Participation Agreement between the Parties had been entered into, replacing the Farmout Agreement, to address the various changes created as a consequence of the Force Majeure event.
Following execution of the Participation Agreement, the arrangements between the Parties are:
- Noble has assumed operatorship of Licence PL001 from the Company;
- Noble and Edison hold a 75% and 25% working interest in the Licence respectively;
- The Company retains an Overriding Royalty Interest of 5% of gross production from all hydrocarbon discoveries developed within the Licence (the “ORRI”);
- The Company has no requirement to contribute to any future capital or operating expenditures incurred over the life of the Licence;
- The Company received US$2.75 million in cash upon completion of the farmout and Noble and Edison will make quarterly cash payments to Argos totalling £300,000 per annum from 1 April 2016; through to receipt of the first royalties pursuant to the ORRI;
- The annual payments are expected to be sufficient to meet the running costs of the Company through to receipt of the first such royalties;
- The terms of Licence PL001 provide that a well must be drilled by the end of the Second Licence Term in November 2016 if the Licence is to be extended into Phase 3. The parties have agreed to seek an extension of the Licence period from the Government to allow for additional time for such a well to be drilled as provided in the Licence;
- Should Noble and Edison elect to surrender the Licence following the drilling of the initial exploration well, Argos has retained the right to have 100% of the working interest reassigned to it, subject to appropriate Falkland Islands Government approvals.
Our listings on AIM
Argos Resources began trading on AIM in July 2010, raising £22m to acquire 3D seismic to evaluate the potential of its Licence.