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Last Updated: Thursday, 19 April 2007, 23:31 GMT 00:31 UK
Oil billions beckon Falkland Islands
By Jon Cronin
Business reporter, BBC News

Floating oil exploration rig
Huge floating oil rigs are needed to search for oil in the Falklands

If you believe the oil men, the inhabitants of the Falkland Islands could soon be among the richest people in the world.

In the year in which the islands commemorate the 25th anniversary of Argentina's invasion, a handful of exploration firms believe they are on the verge of striking it big.

Later this year, they hope to begin drilling in the South Atlantic ocean bed surrounding the Falklands to prove once and for all that the region is rich in oil reserves.

Striking oil would no doubt transform the small and remote British territory, which currently relies on fishing and sheep rearing for most of its income.

If successful, the island's population of about 2,800 would be propelled into the major league of oil producing nations.

"It could make the Falkland Islanders the richest people in the world per head of capita, much more so than in places like Dubai," says Colin Phipps, chairman of oil exploration firm Desire Petroleum.

But while the islanders are taking a keen interest, they've heard it all before.

'Incredible effect'

Nine years ago drilling began on six test wells in the ocean bed north of the islands.

Five of the six wells showed promising results, although an oil strike on a commercial scale eluded the explorers.

Phyl Rendell, Falkland government's director of minerals and agriculture.
We can manage this industry - (the Falklands) is no place for cowboys
Phyl Rendell, Falkland Islands government

Amid rising costs and the plunging value of oil - which slumped to below $10 a barrel at the time - firms including Shell pulled out and the promise of oil wealth in the Falklands remained just that.

Before exploration stopped, however, scientists proved that the underwater basins around much of the Falklands were rich in source rock, from which oil could potentially be drilled.

The area where today's prospectors believe oil lies is vast - roughly equivalent to the central North Sea oil fields.

"We could be looking at 5 to 6 billion barrels of reachable oil, with a potential value of $50bn (25bn)," says Desire Petroleum's Mr Phipps.

"That would have the most incredible effect on the Falklands economy. It would also have a huge effect on UK Plc, especially with North Sea oil declining."

A respected oil industry expert and former UK politician, Mr Phipps stresses that the islands potential oil wealth has yet to be fully proven.

But he is keen to get on with the job.

"Desire is the closest to drilling. If we could get a rig we would drill tomorrow."

Economic security

Oil research vessel
Ships using radar technology explore the ocean surface

Among Falkland Islanders, excitement is mixed with circumspection.

"I'm cautiously optimistic, in 10 years time we could well see production," says Phyl Rendell, the Falkland government's director of minerals and agriculture.

"It would guarantee us economic security. Genuine Falkanders who've got kids here want a sustainable economy."

The Falkland Islands economy has been growing strongly since the conflict with Argentina in 1982, with annual gross domestic product expanding from 5m before the war to more than 75m today.

The island's government has been careful not to begin planning how it would spend its oil dollars before any crude oil flows.

"It's difficult to predict the wealth that would come from oil," says Ms Rendell.

However, oil wealth would enable the Falkland Islands to achieve one long-term goal, namely to cover the 110m military expense the UK government pays for defending the islands.

Argentine worries

Getting at the Falklands hidden crude oil remains a major challenge.

I'm confident that the islanders will exploit any oil or minerals with the same respect they've shown for their wildlife and fisheries
Kim Howells, Minister of State at the Foreign Office

Huge floating oil rigs used to drill prospective oil fields are currently hard to come by.

Most of the world's supply of such off-shore platforms are in use in places like Brazil and the coast of East Africa, where oil deposits have already been proven.

The sheer expense of hiring floating rigs - around $500,000 a day - and the remoteness of the Falkland Islands adds to the logistical feat associated with drilling new test wells.

And then there is the prospect of interference from Argentina.

"Argentina has attempted to prevent companies working in hydrocarbons," says senior Falkland Islands councillor Mike Summers. "It's been an irritant, and could hamper development to a certain extent."

'Zero to lots'

Falkland Islands penguin
Protecting Falklands wildlife from the oil industry is a key concern

Geological experts who have been working closely to determine the potential of Falklands oil also counsel caution.

Phil Richards, of the British Geological Survey, estimates that there is a one in five chance of finding commercially viable oil in the basin north of the Falklands, falling to a one in 10 chance in the south.

"It's certainly frontier territory in terms of the oil industry," he says, adding that the amount of oil lying under the ocean "could be between zero and lots, we really don't know".

Protecting the Falkland Islands pristine eco-system, should commercial off-shore oil drilling begin, is another major concern.

For the time being, the islands economic mainstay remains its fisheries, while the tourism industry is also becoming a bigger money earner.

"I'm confident that the islanders will exploit any oil or minerals with the same respect they've shown for their wildlife and fisheries," Kim Howells, Minister of State at the Foreign Office, told a conference earlier this week in London on the future of Falklands.

Meanwhile, the Falklands government is adamant that it has the wherewithal to exploit oil without damaging the environment.

"We can manage this industry," says Ms Rendell. "We do not want it to trample on our penguins or kill our dolphins. This is no place for cowboys."


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