Falkland Oil in farm-out deal with Noble

Falkland Oil & Gas, the Aim-traded explorer, has clinched a deal with Noble Energy of the US that it says will strengthen its balance sheet and help fund the next phase of its drilling programme.

FOGL is looking for oil and gas off the coast of the Falklands Islands and chief executive Tim Bushell said talks with potential investors started last August. “Given the precarious nature of equity markets we decided we needed an equity partner to help finance our future.”

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Noble will take 35 per cent stakes in FOGL’s Northern Area Licences and Southern Area Licences, excluding the Loligo and Nimrod-Garrodia prospects, and will become the operator of the drilling programmes during 2013 and 2014.

In return Noble will fund 60 per cent of the first two wells and pay $25m in cash to FOGL, a total investment of between $180m and $230m over the next three years.

Mr Bushell said Noble’s funding commitment meant FOGL would end the year with $200m on its balance sheet compared with $100m as expected.

FOGL signed a similar “farm-out” agreement in March with Edison
, the Italian energy group recently taken over by France’s EDF.

Keith Morris, oil analyst at Investec, said Noble had more expertise than Edison in frontier oil exploration and was therefore “a more mainstream partner” for FOGL, and that terms of the deal were in line with market expectations.

Houston-based Noble’s portfolio includes oil and gas fields in west Africa, the eastern Mediterranean and the deep waters of the Gulf of Mexico. It is the first US company to join the new wave of Falklands oil exploration, after Amerada Hess left the region in the 1990s.

Mr Bushell said doubts about the commercial viability of oil production in the Falklands, because of its remote location, were “a red herring” as shipping costs for oil are relatively low. He said the biggest challenge was the cost of extracting oil and gas from such deep waters, and in harsh weather conditions similar to the North Sea.

Mr Morris at Investec said much more drilling was needed in the Falklands to determine whether it would be a significant oil producer. “It is a huge area, it requires a lot of exploration to ascertain whether there’s anything there or not.”

The companies looking for oil and gas in the region have had mixed fortunes in recent months. Last month Premier Oil, the UK oil group, agreed to buy 60 per cent of the assets of Aim-quoted Rockhopper Exploration
, attracted by the potential of its Sea Lion discovery.

But shares in Borders & Southern Petroleum fell sharply last month after it failed to find commercial quantities of gas at its Stebbing prospect.

Shares in Falkland Oil & Gas rose 12.3 per cent on Monday to 84.25p, while Noble Energy’s shares fell 0.4 per cent to $87.34.