Falklands, it’s all coming together.

Until this recent drill campaign the Falklands, particular for FOGL was only a place of dreams, expense and not really very much to show for it. They brought DES and its associated licenses to gain a foothold in the Sea-Lion play. They managed to raise a few million dollars, get a couple of good industry experts on board in a number of JV’s, spent 2 years with some unsuccessful 2D driven drills, they then spent  18 months on 3D and acquiring enough data to sink a battleship.

All of this was good, needed and essential, particular for an unexplored new environment.

However none of it actual proved that outside of Zebedee, oil actual existed.

This current drill campaign is therefore the result of years of work and is a defining moment for FOGL.

The drill on Isobel was a resounding success, although it barely reached the main potential reservoir and it didn’t reach Target Depth(TD) it did exceed all expectations and oil samples were extracted that proved good quality, water free, high pressure OIL. Isobel was part of the northern license area and although wasn’t part of the same system as Zebedee was similar, albeit possibly larger and better pressured.

The current drill on Humpback in the south license area, is a completely different kettle of Falklands fish.

No oil has ever been brought back to the surface in the Southern License area, BOR successfully found liquid gas, however the true prize is the black stuff. Not only would Humpback prove that oil isn’t just a myth, it’s rated as containing half a billion barrels of oil, if indeed oil exists there.

The importance of Humpback is not just the half a billion barrels of oil it might contain. If it comes in as a success it massively de-risks very similar plays containing another 1 billion barrels of oil. Nobel the JV operator of the well has committed to a second well, if it makes a discovery. It also opens up the entire southern range, for considerable further exploration.

The impact on Humpback for FOGL cannot be underestimated.

More recent developments.

Humpback was already a mammoth drill, due to take 60 days, FOGL have announced that this will be nearer 100 days now due to complications (enough time to drill 2 holes in the northern license area). A side drill we take place off the initial drill pad and hole.

It also announced that it has $30m left in the bank after the pre-payment of the Isobel and Humpback drills.

So where does that leave us?

FOGL have received more than their fair share of luck. The lack of the Isobel drill to reach TD looks to be a certain contract failure. Premier the Northern License operator  have to make a second Isobel drill the next priority, once Humpback has been finished. A second free drill to prove up Isobel and its reserves will be greatly appreciated by the market and the BOD of FOGL.

The extra 40 days required for Humpback, will be paid for by the operator Noble.

A new drill at Humpback, if the first is successful will require a fund raising to the tune of $30m. However this will be at a much higher share price, due to the successful drill. An estimated MCAP might be $300-500m.

Unlike the last drill, which saw the drill rig move sharply away from the Falklands after just 12 month. The Eirik Raude is on a notice contract until 2018. This allows Premier and Noble sufficient opportunity for many drills to come and more news flow for the FOGL. FOGL will obviously have to raise money to help contribute to thiss(approx. $150m or so), but it’s estimated that until 2018 they will be proving up between 1bn and 3bn barrels of oil. Beyond 2018 and the Ocean Rig Santorini can potential be used for production holes. Both Premier and Nobel have ear marked larger exploration budgets for 2016. Once in production, if FOGL can maintain a good share of the licenses it will be a multi-billion company as exploration firms up the resources, CPR’s and routes to production are finalised.

I have brought some FOGL recently, the potential of a successful drill with Humpback and the culmination of years of work, outweighs the risk. It also falls nicely into the high quality portion of my portfolio. The partners and potential of the resources are really world class, this isn’t a story of an AIM minnow dreaming about finding something amazing after spending a few million on a wildcat drill. FOGL and its partners have spent a 9 figure sum getting to this stage. Due to the depressed oil price and bear market, the share price is massively undervalued.