Falkland Oil & Gas ready for action

Falkland Oil & Gas is gearing up to begin a five-well exploration campaign during the first quarter of 2015. It's got the money, and a semi-submersible drilling rig was booked months ago. This is clearly high risk stuff, but if Zebedee, or any of the other wells strike oil, the upside here could be substantial.

Peel Hunt certainly thinks so. It has a risked exploration net asset value (RENAV) of 86p, and even when it prices in the obvious risks associated with drilling in such a hostile environment, values Falkland Oil shares at 45p, over 50% higher than the current share price of 28.35p. Unrisked it’s valued at 343p.

Half-year results published Tuesday were largely irrelevant. Falkland Oil lost $1.3 million (£0.8 million) in the six months to June, largely due to extra admin costs. More important is the $108.7 million of cash on the books, enough to pay for the upcoming drilling programme, which is targeting over 1.3 billion barrels of gross prospective resources.

Locations in the North Falkland Basin have already been agreed with partners Premier Oil and Rockhopper. The first well is expected to be Zebedee (160 million barrels (mmbbls)), followed by Isobel Deep (240 mmbbls).

Another two prospects in the South Falkland Basin will follow. Humpback (510 mmbbls) will be first up, although further evaluation of 3D seismic data is needed before a second target is finalised. Then it's back to the north and Jayne East (85 mmbbls).  

Of course, Falkland Oil & Gas and the other explorers in the region come with a big health warning - remember, its shares traded as high as 267p in June 2010 - but for those happy to risk some cash on a high-risk Falkland exploration play, this fits the bill.

"FOGL is the most leveraged way to gain exposure to the capital growth opportunity that is going to be provided from the upcoming exploration programme," says Peel Hunt. Hold on to your hats.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.