Page last updated at 16:48 GMT, Monday, 29 March 2010 17:48 UK

Falkland Islands oil disappoints for Desire Petroleum

Oil platform
Desire's oil platform was moved from Scotland to the Falklands in February

Shares in Desire Petroleum have almost halved after the oil explorer said a well being drilled off the Falkland Islands may not be economically viable.

Shares in other companies operating off the Falklands also fell amid fears that the region's reserves may disappoint.

The well is the first to be drilled in the area for a decade and has prompted Argentina to renew its claim to the Falklands, sparking a row with the UK.

Shares in Desire ended Monday trading in London down 49.5%.

In a stock market announcement, Desire said that initial results from the Liz 14/19-1 well, in the North Falkland basin, showed that the quantities of oil may be small and of poor quality.

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However, the company said it would release a more detailed statement on the drilling later in the week. It is possible that Desire will need to drill deeper to find better quantities of oil and gas.

Until further tests are carried out "it will not be possible to determine the significance of the hydrocarbons encountered and whether the well will need to be drilled deeper, suspended for testing or plugged and abandoned," the company said.

Two other UK companies drilling in the area are Rockhopper and Falkland Oil and Gas, whose shares were down 26% and 11.4% respectively. Rockhopper has a 7.5% interest in the Liz well.

Despite Desire's disappointing announcement, Alan Sinclair, analyst at Seymour Pierce, thought the share price fall was overdone.

"Whilst the market may have been looking for seagull-scorching test results from Liz, it should be borne in mind that this is the first of a potential six-well programme by Desire," he said.

Diplomatic row

The start of drilling off the Falklands last month led to a furious response from Argentina, which claims sovereignty over what it calls the Islas Malvinas.

Argentina has threatened to take "adequate measures" to stop oil exploration in the waters around the islands, and is seeking support from Latin American countries.

UK Defence Minister Bill Rammell said the government had a "legitimate right" to build an oil industry in its waters.

The drilling rig contracted by Desire was towed to the Falklands from Invergordon on the Cromarty Firth in the Scottish Highlands.

The project has also involved the largest consignment of gear to be shipped from Aberdeen - a key port for the North Sea oil and gas industry - to the region.

About 9,000 tonnes of equipment was loaded at Aberdeen harbour for shipment to the Falklands.

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