Falkland Oil & Gas (FOGL) announced this week that it would abandon Toroa, its exploratory well just off the Falkland Islands, after it proved to be dry. The Aim-listed oil explorer’s shares plunged by 50% after the news broke on Tuesday. The group reckons the Toroa area contains up to 1.7 billion barrels of oil. According to one estimate, the Falklands region could contain up to 60 billion barrels, about the same as the North Sea.
What the commentators said
The time to take a punt on a stock like Falkland Oil isn’t when there is good news but when there’s bad, said MoneyWeek’s James Ferguson in his Model Investor newsletter. That helps explain why the shares were recovering by the end of Tuesday. Investors came round to house broker Oriel’s view, said Gary Parkinson in The Times. The news was disappointing but Toroa was the first of a series of test wells. Exploration “is at an early stage in this large frontier basin” to the south of the island, which was previously undrilled.
That’s why this news has no ramifications for other Falkland drillers, said Keith Morris of Evolution Securities. While Toroa is south of the island, most other Falkland explorers operate to the north and there is a “massive geographical and geological” difference between the two basins. The fact that Rockhopper, another explorer, recently found oil in the north makes that area much less risky.
FOGL: 112p; 12m change -54%