Glaxo Smithkline (GSK) fell 2.6% yesterday to finish at £12.03 following reports in the The New York Times that the future of its diabetes drug, Avandia, was a matter of "fierce debate" within the U.S. Food and Drug Administration (FDA) because of ongoing concerns about its side effects on the heart. On Saturday the Senate Finance Committee released a report critical of Avandia and the FDA.
However, the problems should be seen in context. In 2009, Avandia represented only £0.8 billion in global sales compared with the company's £30 billion in global revenue ($44 billion) and it is due to go off patent in 2012.
GSK's strategy to grow its business in emerging markets and maintain diversification by having both a pharmaceutical and consumer segment seems smart. With a forward price/earnings (p/e) of 10 and a dividend yield over 5%, any further weakness below £12 seems a good entry point for a medium term return.
Tuesday, February 23, 2010
Monday, February 22, 2010
Desire petroleum suffers from buy on rumour, sell on fact
After rising as high as £1.32, Desire Petroleum (DES) fell back with a bump to finish the day down 4p at £1.13. At 3.30pm the long awaited RNS was released which said that the Ocean Guardian had spudded the well at 14.15 GMT. Further news will be released after the 30 days of drilling. For most traders in this stock, and there are many, 30 days is a long time to wait. Without any news flow DES will inevitably drift for a while until rumours from the rig begin to leak. But Contrarian Investor is a little patient so after closing my position at 128p, I have bought back. This one is too volatile to stay on the sidelines for too long. Nice to see FOGL staying in positive territory. I am sure that further rises are on the way.
Upward move in DRAM memory chip looking positive for Micron Technology
Micron Technology (MU) opened above the $9 mark today as isuppli forecasted that Global DRAM sales are expected to rise 40 percent this year, ending three consecutive years of decline.DRAM chips are used mainly in PC's. Global revenue was forecast to rise for dynamic random access memory (DRAM) chip sales this year to $31.9 billion, up from $22.7 billion last year (+40.5%) and 45% up from 2008 levels. Volume and price per chip are expected to continue rising through 2010.Unlike past trends in the highly cyclical industry, iSuppli believes the current upcycle will not be followed by rapid declines in revenue and price growth in following quarters.
No stopping stampede for Falkland Island Oil shares
The Falkland Oil drillers continued to power ahead this morning as the Ocean Guardian Rig starts drilling on the Liz field: Desire Petroleum (DES) 129p +10%, Rockhopper (RKH) 76.75p +10%, Falkland Oil and Gas (FOGL)159p +5.3%, Borders and Southern (BOR) 69p +2.2%. The North Falklands basin drillers, Desire and Rockhopper are getting the majority of the action given the relative rates of news flow from the Northern and Southern basins.
News flow from Desire Petroleum and Nighthawk Energy
Desire Petroleum (DES) began drilling on its prospect in the Falkland Islands this morning. It would be surprising not to get an RNS updating shareholders during this week. Falkland Oil and Gas (FOGL) and BHP's announcement on hiring of a deep water rig for their South Falklands prospects should also be due any week now.
The key seismic and production information from the Jolly Ranch and Revere projects is expected from Nighthawk Energy (HAWK) this week. Should either be a highly exciting or demoralising news release for HAWK shareholders!
Sunday, February 21, 2010
Portfolio Update - February 21st 2010
The market’s had a good week, with most of the major indices up 3% or so. Sentiment seems to have turned positive over the last 2 weeks after the negativity early in February. One of Contrarian Investor UK’s principles to maintain adequate diversification is being broken this week as my portfolio is too heavily weighted towards GW Pharma and the Falkland Islands Oil companies. But the “binary bet” on the success of GW’s Sativex cannabis spray for Multiple Sclerosis is far too tempting a target. The previous application for the drug was rejected because of inadequate clinical trial data. This was addressed with an additional phase III clinical and the new application made for a European licence in the summer of 2009 looks very strong. I have used Contract’s For Difference (CFDs) to limit the downside risk to 20% or so, but approval should move GW Pharma up at least 50-60%. As for the Falklands Oil drillers, all the hype and TV/press coverage is just too tempting to exploit and again the upward move on these shares will be so significant that a guaranteed stop loss using a CFD seems a sensible trade, albeit a gamble. “Fortune favours the brave”.
Coal of Africa (CZA) – Significant upward move in this share price this week on no news from 130p range to a high of 153p. Positions closed despite long term conviction in this stock, especially as Vele mine approval was finally given this month. This strategy appeared to have paid off on Friday with CZA falling as much as 5% at one point. I will watch for a potential re-entry point if the positive market sentiment turns for the worse.
GW Pharma (GWP) – Still no news on the Sativex European approval but given the timings of the Decentralised approval process (DCP) for drugs in Europe it would be expected that news is not far off. Have increased position once again at 87p.
Falklands Islands Oil (Falkland Oil and Gas –FOGL, Desire Petroleum – DES, Borders and Southern Petroleum BOR) – Its been an exciting week for the Falklands Oil stocks as Argentina issued a decree that any vessel passing through its waters would need a permit to visit the Falklands which made investors somewhat nervous. On Friday, the Ocean Guardian Rig, contracted by Desire Petroleum arrived on the Liz field in the North Falklands basin and is due to spud this afternoon. I took the opportunity to top up my holding in Desire Petroleum despite some reservations about my significant exposure to the Falklands Oil sector. The risks are significant but the geology of the Falklands basin and oil finds in the previous drilling campaign by Shell/Lasmo gives more than hope that oil will be found in economic quantities. If the Ocean Guardian Rig does strike it rich then I would expectd Desire’s share price to be closer to £20 than 1 so the risk/reward ratio still looks enticing despite the strong run up in the Falkland Island Oil shares. Falkland Oil and Gas and Borders and Southern Petroleum have been relatively benign for a couple of weeks now, so a rise in these Southern Basin stocks would be expected on any news from the Northern Basin drilling campaign.
Nighthawk Energy (HAWK) - Nice move back up from 27p to just over 30p as the company announced the appointment of a new non-exec. director. News on Jolly Ranch should be imminent and therefore I am hopeful of a solid move towards 40p in the next week.
Nighthawk Energy (HAWK) - Nice move back up from 27p to just over 30p as the company announced the appointment of a new non-exec. director. News on Jolly Ranch should be imminent and therefore I am hopeful of a solid move towards 40p in the next week.
ITV (ITV) – A move up from below 50p to 53p as news on potential government approval of Product Placement on UK TV came through. Position still in deficit but given TV market revenue rebound in both January and February, outlook looks positive.
Amgen (AMGN) – News was received this week that an opinion on the FDA application for Prolia (denosumab) would be received by end July. I have trimmed by position a little this week because of a shift in the portfolio to GWP and the Falkland’s shares but will look to top up in the next few weeks.
Intel (INTC) - Position closed at $21.7, following a good rise in the semiconductor stocks this week. I like Intel long term but it trades within a range of $19-$22 so a move to the upper end triggered a sale.
Micron (MU) – The worst performing stock in the portfolio but Micron continues to rebound from its lows close to $8 to finish Friday at $8.9. Holding
Saturday, February 20, 2010
FDA decision on Amgen's Prolia by end July 2010
The U.S. Food and Drug Administration (FDA) has accepted Amgen's (AMGN) application for its osteoporosis drug Prolia (denosumab) and will make its approval decision by July 25, the company said on Friday.The FDA asked Amgen last October to provide additional information before it would proceed with its review and the company submitted its response in late January. A European decision on Prolia approval is expected in the first half of 2010.
Friday, February 19, 2010
Desire's Ocean Guardian Rig arrives on Liz field
Channel 4 news web site has just published a story that the Ocean Guardian rig drilling for Desire Petroleum has arrived at the Liz field in the UK exclusion zone off the Falklands Islands. Position topped up at 110p.
PRODUCT PLACEMENT AND IMPACT ON ITV REVENUES
Paid for product placement on TV is currently outlawed in the UK and as recently as March 2009, Andy Burnham, the Secretary of State at the time, showed no signs this was going to change. He stated he had “very serious concerns” about the relaxation of product placement laws because it was “blurring the boundaries between advertising and editorial.”. Six months on, the new Secretary of State, Ben Bradshaw, is expected to make an announcement this week at the Royal Television Society which will pave the way for relaxation of the rules on commercial television. A consultation is expected to take place over the next three months with changes, if they are to occur, being implemented next year. A change in the rules has the support of the Conservatives and the Liberal Democrats so even a change in Government next year is unlikely to affect the outcome of the consultation.
Currently producers of UK TV programmes are allowed to include “real” products as props in the production of television programmes. As a result an industry that has grown out of this need in which placement agencies are paid by advertisers to arrange for their brands to be placed into TV programmes by providing the product as a free prop to production companies. This saves the producers money as they don’t have to buy the products they need and, for the client, they get some “free” exposure for their placed product. However, due to the rules preventing undue prominence of products in programmes, the exposure brands get is normally small, uncontrolled and incidental. This, in itself, is not a problem as the money invested by the brand is usually a relatively modest fee paid to the placement agency, in return for what can be potentially high profile media exposure.
What might happen?
At this point no one knows what the Government policy will be on this matter as they seem set to take a significant u-turn in the space of just six months. It seems, however, increasingly likely that some form of paid for placement will be allowed on commercial TV from some time next year. In other words, brands will be able to pay for the right for their product to be featured in the programme, in return for a certain set of contracted rights and benefits from the producer of the programme. This has divided the commercial television broadcasters with ITV keen to see the rules relaxed, whilst the likes of Channel 4 and many of the others less enthusiastic. ITV are the broadcaster and the producer in many cases, while the others are largely just broadcasters who are commissioning the programmes for the independent producers - it’s more difficult for them to see the commercial benefits.
The Arguments in favour of relaxation are;
• Product placement already exists in Film and imported US TV programmes which are broadcast, unedited, in the UK. Viewers are used to it and it levels the playing field for UK producers
• Content broadcast online is not regulated and product placement is common place in dramas such as Kate Modern and Sophia’s Diary
• Real products lend credibility to programmes; it makes the programmes more “real”
• Product placement in programmes gives credibility to brands
• It can help change consumer behaviour by allowing advertisers to demonstrate how they want their products to be used e.g. new mobile phone functions
• Media exposure can be easily measured and priced
• Advertisers who fund TV shows will be able to include their products
The Arguments against are;
• It will blur the lines between editorial and advertising causing viewer confusion and/or cynicism
• Editorial integrity will be compromised by the demands of the advertisers who have their products placed
• The use of the product is not controlled so that clients run the risk of inappropriate use of their product or it being placed in a bad light e.g. brake failure on a car, skin issues from cosmetics etc
• You might be able to put a price on exposure but if it’s subliminal how do advertisers put a value on its effectiveness?
• Paid products placed in programmes could be ambushed by brands who sponsor the programme unless safeguards are put in place
• Logistically and contractually complex to deliver
• A marginal commercial benefit for significant editorial compromises
Figures of £100 million in product placement revenues have been banded around, but this seems to be a long term goal. If this iniative is allowed, this is good news for ITV revenues and therefore shareholders though the actual effect on the bottom line may not be felt to a great extent for many years.
Currently producers of UK TV programmes are allowed to include “real” products as props in the production of television programmes. As a result an industry that has grown out of this need in which placement agencies are paid by advertisers to arrange for their brands to be placed into TV programmes by providing the product as a free prop to production companies. This saves the producers money as they don’t have to buy the products they need and, for the client, they get some “free” exposure for their placed product. However, due to the rules preventing undue prominence of products in programmes, the exposure brands get is normally small, uncontrolled and incidental. This, in itself, is not a problem as the money invested by the brand is usually a relatively modest fee paid to the placement agency, in return for what can be potentially high profile media exposure.
What might happen?
At this point no one knows what the Government policy will be on this matter as they seem set to take a significant u-turn in the space of just six months. It seems, however, increasingly likely that some form of paid for placement will be allowed on commercial TV from some time next year. In other words, brands will be able to pay for the right for their product to be featured in the programme, in return for a certain set of contracted rights and benefits from the producer of the programme. This has divided the commercial television broadcasters with ITV keen to see the rules relaxed, whilst the likes of Channel 4 and many of the others less enthusiastic. ITV are the broadcaster and the producer in many cases, while the others are largely just broadcasters who are commissioning the programmes for the independent producers - it’s more difficult for them to see the commercial benefits.
The Arguments in favour of relaxation are;
• Product placement already exists in Film and imported US TV programmes which are broadcast, unedited, in the UK. Viewers are used to it and it levels the playing field for UK producers
• Content broadcast online is not regulated and product placement is common place in dramas such as Kate Modern and Sophia’s Diary
• Real products lend credibility to programmes; it makes the programmes more “real”
• Product placement in programmes gives credibility to brands
• It can help change consumer behaviour by allowing advertisers to demonstrate how they want their products to be used e.g. new mobile phone functions
• Media exposure can be easily measured and priced
• Advertisers who fund TV shows will be able to include their products
The Arguments against are;
• It will blur the lines between editorial and advertising causing viewer confusion and/or cynicism
• Editorial integrity will be compromised by the demands of the advertisers who have their products placed
• The use of the product is not controlled so that clients run the risk of inappropriate use of their product or it being placed in a bad light e.g. brake failure on a car, skin issues from cosmetics etc
• You might be able to put a price on exposure but if it’s subliminal how do advertisers put a value on its effectiveness?
• Paid products placed in programmes could be ambushed by brands who sponsor the programme unless safeguards are put in place
• Logistically and contractually complex to deliver
• A marginal commercial benefit for significant editorial compromises
Figures of £100 million in product placement revenues have been banded around, but this seems to be a long term goal. If this iniative is allowed, this is good news for ITV revenues and therefore shareholders though the actual effect on the bottom line may not be felt to a great extent for many years.
2/3 of S&P 500 companies have beaten on top line
This morning I was listening to the the excellent and highly recommended S&A Investor Radio Podcast by Frank Curzio (available for free from the Itunes store). Frank interviewed head of research for TheStreet.com's Action Alerts portfolio (Jim Cramer's Charitable portolion), Stephanie Link, and she cited the statistic that 2/3 of companies that had reported so far in the S&P 500 had beaten on revenues. This is an interesting statistic since it indicates that perhaps economic recovery in the U.S. is better than expected as the hypothesis has been that aggressive cost cutting has grown bottom line profits but the sales revenues were still weak due to low economic activity.The U.S. economy looks to be set for good growth in the next 6 months, helped by the continued stimulus package.The continued deficit issues make the back end of 2010 and 2011 much more hazy.
Although I have been selling down portfolio positions over the last week to bank some profits in stocks such as Coal of Africa (CZA), Intel (INTC) and Amgen (AMGN), any significant weakess in the markets is very much seen as a buying opportunity for favoured names. Certainly a trading market, not a buy and hold by any means!
Although I have been selling down portfolio positions over the last week to bank some profits in stocks such as Coal of Africa (CZA), Intel (INTC) and Amgen (AMGN), any significant weakess in the markets is very much seen as a buying opportunity for favoured names. Certainly a trading market, not a buy and hold by any means!
Coal of Africa positioned offloaded on share price strength
The holding in South African miner Coal of Africa was sold yesterday as the price surged to £1.53. The price is off nearly 5% today to £1.46 as commodity prices have been under pressure as the U.S. dollar has risen on the news that the Fed has tightened the discount window for emergency funds. CZA rose from around £1.30 earlier in the week and moved to a year high (marginally higher than the Vele mine approval news day). Although it is considered a great long term play, a 15% rise on no news is seen as a selling opportunity particularly given the U.S. and UK markets have shown a strong rally since early February. Overall Contrarian Investor has been trimming holdings on the market strength.
U.S. Federal Reserve in surprise increase in emergency loan rate
The FTSE 100 was recently up 8 points and Dow Futures were off 50 points on the news that the U.S. Federal Reserve was to begin lifting its benchmark lending rate earlier than previously thought. The Fed announced last night that it would lift the rate it charges banks for emergency loans by a quarter percentage point from 0.5% to 0.75%. It is considered unlikely that the more important Fed Funds rate will rise anytime soon as economic recovery is still weak.
Wednesday, February 17, 2010
Intel strength gives sale opportunity
Intel (INTC) closed at $20.7, +0.29 (1.2%) last night which gave an opportunity to close the position accumulated from the $19 level. The range bound nature of this semiconductor stock makes other opportunities more enticing in the current market. Any move back below $19.5 would give a re-entry point.
Markets recover strongly as positive sentiment returns
The Dow Jones Industrial Average ended with a 169 point gain, up 1.7%, at 10,268, the Nasdaq Composite Index rose 1.4% to 2,214 whilst the FTSE 100 gained 76 points to 5,244.
The Dow's strongest component by far was Bank of America Corp.(BAC ) whose shares rose nearly 5% after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program. Also, it reported better payment performance on its credit card loans last month.Sentiment was further helped in the financial sector by better than expected earnings from Barclays (BARC) which drove a 6.8% to £2.94 in the U.K., whilst its American depositary shares soared 13.7%.
The Dow's strongest component by far was Bank of America Corp.(BAC ) whose shares rose nearly 5% after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program. Also, it reported better payment performance on its credit card loans last month.Sentiment was further helped in the financial sector by better than expected earnings from Barclays (BARC) which drove a 6.8% to £2.94 in the U.K., whilst its American depositary shares soared 13.7%.
The dollar fell as investors took on risk as fears about the impact of the potential default of Greece on the wider European economy ebbed. That helped the prices of commodity related stocks. Gold ended $29.80 an ounce higher at $1,119.80 an ounce whilst oil rose $3 to $77 a barrel after going below $70 less than 2 weeks ago.
Tensions escalate over Falkland Islands oil
Falkland Battle Lines Form Over Jurassic Oil Search
Tuesday, 16 February 2010 14:14 - "Falkland Battle Lines Form Over Jurassic Oil Search"
Argentina is driving up exploration costs for U.K. oil companies seeking to drill near the disputed Falkland Islands, escalating tensions over the remote South Atlantic archipelago that led the two countries to war in 1982.
Argentina is forbidding vessels that stop at the Falklands to load cargoes at its ports for the 8,000-mile return journey to Europe. That’s likely to increase costs, Mark Jenkins, a director at shipbroker Simpson Spence & Young Ltd. said in an interview. Voyages “will be more expensive,” he said.
Argentina summoned U.K. embassy officials to issue its “most energetic protest against the imminent start of drilling” near the Falklands, known in Argentina as Las Malvinas, on Feb. 2. London-based Desire Petroleum Plc, which plans to start drilling offshore the islands this month, fell 4.68 percent in two days after Argentina said Feb. 11 it had refused to let the Thor Leader cargo ship leave a river port.
“The government wants to signal that anyone who is collaborating with the Malvinas on any projects won’t be welcome to Argentina,” Federico Thomsen, 53, who heads political and economic researcher E.F. Thomsen in Buenos Aires, said in a Feb. 15 telephone interview. “It would be better for Argentina to try to integrate and participate more in global trade.”
First Exploration
Desire will start the first exploratory drilling in Falkland Island waters since 1998, when companies including Royal Dutch Shell Plc abandoned the search because they didn’t discover enough oil. Companies including Melbourne-based BHP Billiton Ltd. and Falkland Oil & Gas Ltd., based in London, also plan to start drilling, using the Ocean Guardian rig.
The Ocean Guardian is scheduled to arrive at the Falklands on Feb. 17 at 2p.m., according to Bloomberg ship-tracking data. The rig is being towed by the 73-meter long Maersk Traveller, a tug ship owned by Copenhagen-based AP Moller Maersk - A/S.
“The oil price in ‘98 was $10 a barrel and is now $70-75 a barrel,” Sam Moody, managing director of London-based Rockhopper Exploration Plc, which is leasing the Ocean Guardian after Desire, said in an interview. “We believe we need about 50 million barrels at an oil price of $50 to break even.”
Desire’s Liz prospect has estimated resources of between 45 million and 783 million barrels, according to a report by Senergy Ltd., which specializes in appraisal for oil explorers, released in September 2009 and commissioned by Desire.
Thor Leader
Argentina blocked the Thor Leader from leaving a Techint Group plant after it traveled to the Falkland Islands without Argentine government permission. The company said the ship contained steel pipe that was destined for ports in the Mediterranean, without giving more precise information on the final destination.
A discovery of commercial quantities of oil may cause the share price of Desire to surge as much as 90 percent, Nick Copeman, 39, an analyst with London-based Oriel Securities, said in a Feb. 9 telephone interview.
Desire shares rose 2.25 to 107.5 pounds at 12:38 p.m. in London trading while Rockhopper rose 2 percent to 64.5 pounds and Falkland Oil & Gas shares rose 2.1 percent 156 pounds.
Argentina has repeatedly protested efforts to explore for energy deposits off the islands. In 2007, then President Nestor Kirchner voided a 1995 oil and gas exploration agreement with the U.K. that had been suspended for five years.
‘Sovereign Rights’
“The Foreign Ministry reiterates its sovereign rights over the Malvinas Islands, South Georgia and the South Sandwich Islands and the sea surrounding them, which form a part of its national territory,” Argentina’s Foreign Ministry said Feb. 2. Argentina’s objections won’t affect the islands’ oil licensing or any other policies, said Emma Edwards, a member of the archipelago’s eight-member assembly. “Argentina can continue protesting, but it doesn’t matter,” Edwards, 38, said in a Feb. 4 telephone interview from Port Stanley, the capital. “They’ve been doing this forever.”
There’s no point in Argentina continuing to call on international bodies such as the United Nations and the Organization of American States to press its claims, said Carlos Escude, 61, a foreign policy advisor to Argentina’s Foreign Ministry in 1991 and 1992. Neither has the power to make the U.K. change its stance.
“There is no future in pursuing those options,” Escude said in a Feb. 9 interview from Buenos Aires.
The U.K. government reiterated the Falkland Islands’ right to pursue oil and gas exploration. “We are absolutely clear this is a legitimate business in Falkland Islands waters,” a Foreign and Commonwealth Office spokesman said by e-mail. “Argentine reaction is a matter for the Argentine government. Argentina is an important partner for the U.K.”
Windswept Islands
The development of an oil industry would enable the windswept islands, which now depend on sheep farming and fishing, to diversify its economy, according to Edwards. Some 4,200 people live there, with about 1,700 of them based at the Mount Pleasant military complex.
Oil around the Falklands lies within Jurassic or Triassic layers under the seabed, dating back more than 145 million years. These are deeper than most of the world’s offshore discoveries, according to New York-based Bernstein Research, an investment research company.
Crude oil futures traded at $74.94 a barrel on the New York Mercantile Exchange at 9:31 a.m. London time today. Prices have doubled in the past year.
The price of oil is not the main reason for the lack of success in 1998, Moody said. “The world is a different place and there’s been a huge leap forward in seismic technologies.”
BHP Partnership
A partnership between BHP Billiton and Falkland Oil & Gas is seeking a second rig to drill in another offshore area, Tim Bushell, 50, chief executive of Falklands Oil & Gas, said in a Jan. 29 interview from London. Ruben Yogarajah, a BHP spokesperson in London, declined to comment. BHP and Falkland O&G’s Toroa prospect has estimated prospective resources from 380 million to 2.9 billion barrels, Falkland said Nov. 26.
Drilling and exploration in Argentine-controlled waters near the islands is due to start in the second half of the year, according to a Buenos Aires-based spokesman for the Argentine unit of Repsol-YPF SA, who declined to be named because of company policy.
The search will be conducted by a partnership between YPF, as the Argentine arm of Repsol is called, Petroleo Brasileiro SA and Argentina-based Pan American Energy LLC, which is 60 percent owned by BP PLC, while the remaining shares are owned by Argentina’s Bridas Group.
By Rodrigo Orihuela, Morwenna Coniam and Eliana Raszewski. Source: Bloomberg
Tuesday, 16 February 2010 14:14 - "Falkland Battle Lines Form Over Jurassic Oil Search"
Argentina is driving up exploration costs for U.K. oil companies seeking to drill near the disputed Falkland Islands, escalating tensions over the remote South Atlantic archipelago that led the two countries to war in 1982.
Argentina is forbidding vessels that stop at the Falklands to load cargoes at its ports for the 8,000-mile return journey to Europe. That’s likely to increase costs, Mark Jenkins, a director at shipbroker Simpson Spence & Young Ltd. said in an interview. Voyages “will be more expensive,” he said.
Argentina summoned U.K. embassy officials to issue its “most energetic protest against the imminent start of drilling” near the Falklands, known in Argentina as Las Malvinas, on Feb. 2. London-based Desire Petroleum Plc, which plans to start drilling offshore the islands this month, fell 4.68 percent in two days after Argentina said Feb. 11 it had refused to let the Thor Leader cargo ship leave a river port.
“The government wants to signal that anyone who is collaborating with the Malvinas on any projects won’t be welcome to Argentina,” Federico Thomsen, 53, who heads political and economic researcher E.F. Thomsen in Buenos Aires, said in a Feb. 15 telephone interview. “It would be better for Argentina to try to integrate and participate more in global trade.”
First Exploration
Desire will start the first exploratory drilling in Falkland Island waters since 1998, when companies including Royal Dutch Shell Plc abandoned the search because they didn’t discover enough oil. Companies including Melbourne-based BHP Billiton Ltd. and Falkland Oil & Gas Ltd., based in London, also plan to start drilling, using the Ocean Guardian rig.
The Ocean Guardian is scheduled to arrive at the Falklands on Feb. 17 at 2p.m., according to Bloomberg ship-tracking data. The rig is being towed by the 73-meter long Maersk Traveller, a tug ship owned by Copenhagen-based AP Moller Maersk - A/S.
“The oil price in ‘98 was $10 a barrel and is now $70-75 a barrel,” Sam Moody, managing director of London-based Rockhopper Exploration Plc, which is leasing the Ocean Guardian after Desire, said in an interview. “We believe we need about 50 million barrels at an oil price of $50 to break even.”
Desire’s Liz prospect has estimated resources of between 45 million and 783 million barrels, according to a report by Senergy Ltd., which specializes in appraisal for oil explorers, released in September 2009 and commissioned by Desire.
Thor Leader
Argentina blocked the Thor Leader from leaving a Techint Group plant after it traveled to the Falkland Islands without Argentine government permission. The company said the ship contained steel pipe that was destined for ports in the Mediterranean, without giving more precise information on the final destination.
A discovery of commercial quantities of oil may cause the share price of Desire to surge as much as 90 percent, Nick Copeman, 39, an analyst with London-based Oriel Securities, said in a Feb. 9 telephone interview.
Desire shares rose 2.25 to 107.5 pounds at 12:38 p.m. in London trading while Rockhopper rose 2 percent to 64.5 pounds and Falkland Oil & Gas shares rose 2.1 percent 156 pounds.
Argentina has repeatedly protested efforts to explore for energy deposits off the islands. In 2007, then President Nestor Kirchner voided a 1995 oil and gas exploration agreement with the U.K. that had been suspended for five years.
‘Sovereign Rights’
“The Foreign Ministry reiterates its sovereign rights over the Malvinas Islands, South Georgia and the South Sandwich Islands and the sea surrounding them, which form a part of its national territory,” Argentina’s Foreign Ministry said Feb. 2. Argentina’s objections won’t affect the islands’ oil licensing or any other policies, said Emma Edwards, a member of the archipelago’s eight-member assembly. “Argentina can continue protesting, but it doesn’t matter,” Edwards, 38, said in a Feb. 4 telephone interview from Port Stanley, the capital. “They’ve been doing this forever.”
There’s no point in Argentina continuing to call on international bodies such as the United Nations and the Organization of American States to press its claims, said Carlos Escude, 61, a foreign policy advisor to Argentina’s Foreign Ministry in 1991 and 1992. Neither has the power to make the U.K. change its stance.
“There is no future in pursuing those options,” Escude said in a Feb. 9 interview from Buenos Aires.
The U.K. government reiterated the Falkland Islands’ right to pursue oil and gas exploration. “We are absolutely clear this is a legitimate business in Falkland Islands waters,” a Foreign and Commonwealth Office spokesman said by e-mail. “Argentine reaction is a matter for the Argentine government. Argentina is an important partner for the U.K.”
Windswept Islands
The development of an oil industry would enable the windswept islands, which now depend on sheep farming and fishing, to diversify its economy, according to Edwards. Some 4,200 people live there, with about 1,700 of them based at the Mount Pleasant military complex.
Oil around the Falklands lies within Jurassic or Triassic layers under the seabed, dating back more than 145 million years. These are deeper than most of the world’s offshore discoveries, according to New York-based Bernstein Research, an investment research company.
Crude oil futures traded at $74.94 a barrel on the New York Mercantile Exchange at 9:31 a.m. London time today. Prices have doubled in the past year.
The price of oil is not the main reason for the lack of success in 1998, Moody said. “The world is a different place and there’s been a huge leap forward in seismic technologies.”
BHP Partnership
A partnership between BHP Billiton and Falkland Oil & Gas is seeking a second rig to drill in another offshore area, Tim Bushell, 50, chief executive of Falklands Oil & Gas, said in a Jan. 29 interview from London. Ruben Yogarajah, a BHP spokesperson in London, declined to comment. BHP and Falkland O&G’s Toroa prospect has estimated prospective resources from 380 million to 2.9 billion barrels, Falkland said Nov. 26.
Drilling and exploration in Argentine-controlled waters near the islands is due to start in the second half of the year, according to a Buenos Aires-based spokesman for the Argentine unit of Repsol-YPF SA, who declined to be named because of company policy.
The search will be conducted by a partnership between YPF, as the Argentine arm of Repsol is called, Petroleo Brasileiro SA and Argentina-based Pan American Energy LLC, which is 60 percent owned by BP PLC, while the remaining shares are owned by Argentina’s Bridas Group.
By Rodrigo Orihuela, Morwenna Coniam and Eliana Raszewski. Source: Bloomberg
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