Industry NewsHopes that the Falkland Islands could become a big source of oil are rising fast after a British company said that it had made the first find in a controversial campaign to seek, and claim ownership of, the precious commodity in the Southern Atlantic.
Shares in Rockhopper Exploration soared 138 per cent after news of the discovery 220km (135 miles) to the north of the islands.
It will exert renewed pressure on the tense diplomatic ties between Britain and Argentina. Buenos Aires has repeatedly declared its opposition to drilling in the region. Jorge Taiana, the Argentine Foreign Minister, has described the British drilling campaign as "an illegal act that goes against international law and against UN resolutions".
British government policy remains unclear because of the election and is further contorted by the ramifications of the BP oil spill in the Gulf of Mexico.
Oil was found after 20 days of drilling through rock and sand to a depth of 2,740m (9,000ft) below sea level. It led the managing director of Rockhopper, Samuel Moody, to say that he was extremely excited by the results from its Sea Lion well. He declined to comment on the political implications.
The discovery was made using the Ocean Guardian, a 14,400-tonne rig that was towed 13,000km miles from Scotland last autumn. The journey took six months. The Ocean Guardian is set to drill another four wells around the Falklands over the next few months. A Rockhopper spokesman said that the company had encountered a 53m-thick deposit of oil distributed in several layers. The largest was 25m thick.
Richard Rose, an analyst at Oriel Securities, the City firm, said that the find was "very significant" and could amount to 200 million barrels of oil — worth ?17 billion at current prices. "That's pretty chunky," an industry source said.
Rockhopper said that further analysis of the find was now under way and that it was considering drilling another well this year to determine how much oil was present. Mr Moody said: "While we are presently acquiring additional data, current indications are that we have made the first oil discovery in the North Falkland Basin."
The drilling campaign by the Ocean Guardian is the first in the Falklands since 1998, when Shell and Lasmo drilled six wells in a nearby area. Traces of oil were discovered in all but one of them — where gas was found instead — but the following year the global price of crude collapsed, undermining the commercial logic of developing oilfields in such a remote area.
However, vast reserves are thought to lie in the South Atlantic. A study by the British Geological Society suggested that up to 60 billion barrels of oil could lie beneath the seas to the north of the Falklands — a similar-sized deposit to that in the North Sea.
Other companies, such as Falkland Oil and Gas and Borders & Southern, are prospecting in another region that lies to the south of the islands.
Shares in Rockhopper rose by 28.5p to 65.5p after the announcement.
After Argentina's 1982 invasion of the Falklands and its subsequent defeat, the UN called for negotiation over sovereignty of the islands. Britain has pledged to support their population, whose presence there can be traced back to the early 1800s.