Environmental Impact Assessment for North Falklands Basin
October 7, 2005
by J. Brock (FINN)
DESIRE PETROLEUM TO CONDUCT ENVIRONMENTAL IMPACT ASSESSMENT IN NORTH FALKLAND BASIN
By J. Brock (FINN)
Desire Petroleum’s Chief Executive Officer, Mr. Ian Duncan (ID) is visiting the Falklands this week to make arrangements to conduct an Environmental Impact Assessment (EIA) in the Company’s Tranches in the North Falkland Basin. In an exclusive interview with FINN, Mr. Duncan explained that he wasn’t here for a shareholders’ meeting but
ID: It’s on-going planning for the resumption of drilling in the North Falkland Basin. As we have announced, we are planning to drill three wells there and, as part of the process, we are preparing an Environmental Impact Assessment. This is an update of the 1998 EIA, which the companies prepared at that time.
We have appointed a company called RPS Energy, which is the leading environmental consultancy company in Europe to produce it. In the first part of the process of this visit, John Parry, who is the Environmental Manager, who will be carrying out the EIA, was here last week. And, with myself, we visited all the major stake holders, which are, Mineral Resources, Falklands Conservation, Fisheries, the Chief Executive, the Deputy Governor, Environmental Planning and the Public Works Department. We really just wanted to find out what the major stake holders’ concerns were so we could address them in the EIA.
We have had some very successful meetings. The intention was for John to go back to the UK and draw up the EIA and we will submit it in late November to the Director of Mineral Resources. There is an internal time table for Mineral Resources and Phyl Rendell is to take it to Executive Council and it will be published in the Gazette for 42 days.
It was very important for Mr Duncan to stress that Desire Plc is a transparent company. And no wonder. Speculation was high about the low-key visit thus far.
ID: We encourage people to ask questions about what we are doing. We want people to be aware of our operations so the EIA will be published for 42 days and we will invite comments. And, at the end of that period we will come back with RPS and our drilling people. We will then have a public meeting and explain what it is we are about and address any issues that have arisen during the presentation and the EIA.
FINN: Is the EIA an important part of the process?
ID: A very important part. For us, environmental protection is a priority with regard to our operations. That’s why we are conducting this study and also why we are having these presentations, so if people have concerns, we point out this is a very straight forward operation. Drilling has taken place in this area before. There have been extensive base-line studies as a result of the 1998 drilling. We are very keen to involve all parties in our activities.
FINN: I understand that all of the seismic is done and that the next stage after the EIA will be drilling. Is this true or do you have more seismic work to do?
ID: In 2004, we shot the 3D seismic 840 sq km and interpreted the data. We have identified these prospects we would like to drill. Earlier this year we had a fundraising exercise when we raised £24Million and we are currently putting in place all the permits and approvals to commence drilling and we are looking for a rig.
As we have announced recently in our interim statement, the rig market has changed dramatically in the last 6 months. Last December we had a rig enquiry to the market on the availability of rigs and seven of the major drilling companies phoned and said they had suitable rigs. In the meantime, we went through the fund raising exercise. We then went again to look at the market, once we had the funds – we couldn’t secure the rig until we had the money.
We discovered the rig market had tightened dramatically and of course the oil price has gone up – doubled. Rig rates have doubled as well and the availability of rigs has really reduced dramatically. There are several reasons for this as oil prices are encouraging companies to go drilling for exploration wells, drilling production wells, they are drilling appraisal wells. So now we are looking at a very tight market but we have been here before on these markets, when oil prices go up they also come down.
Seeing that the price of getting a rig to the North Falkland Basin had doubled, would Desire have to go back to the market place to raise more money? The short answer is no. They simply will wait until prices stabilise before identifying a rig and putting it over an exploratory prospect.
What happens in the rig market is that – and we are already seeing it – new rigs start to get built. We know there are 30 new rigs under construction. What really brings it to our attention is that people drill dry holes, so they may have a continuing programme drilling wells but they decided not to drill any more wells so those rigs then come on the market.
The company we are using for drilling is called Peak Well Management. They are an international company that are involved in drilling over 30 wells world-wide this year – West Africa, the North Sea – and they are actively looking for a rig for us at the moment. It’s been very disappointing and frustrating for us that we have not been able to get a rig but we are doing everything possible to get one. We don’t know when that will be.
FINN: I have heard that one of the problems in finding a suitable rig is that the technology is scarce that will drill through the rather thick source rock that is predominant in the North Falkland Basin. Is this a major factor in why you cannot get a rig down here?
ID: Six wells were drilled in the area where we are going to drill. These wells were drilled in 1998 and they were really rather straight forward wells. There were no complications. For example, they drilled a 3,000 metre well in just over 20 days. As I say, no hazards were identified and drilling is very straight forward. We don’t see any problems.
The conditions where we are drilling in the North Falkland Basin are very similar to the central North Sea weather-wise, so you can drill all the year around. The water depths are very reasonable and similar to the North Sea. These are shallow wells – 3,000 metres. We are not looking at deep wells and we are planning to drill three wells and we are looking at 80 to 100 days for the total programme, so this is not a long duration programme. Because the environment is very similar in terms of water depth and weather in the North sea, we can use what is called 3rd Generation semi submersibles. And there are a lot of those available in the north.
This is not a deep water hostile environment like the west of Shetland where there are many fewer rigs than there are available that can drill areas like the North Falkland Basin.
FINN: Many people writing about this area tout horrible weather and, FINN has replied to one such article recently.
ID: I always say the weather is like that in Aberdeen and I am from Aberdeen so I might be a little bit biased. You do get a bit more sunshine that London. I just wish I had taken my shorts and tee shirts with me.
FINN: We know about the source rock in the North Falkland Basin but FOGL are showing their results in the South Falkland Basin that shows gas chimneys and flat spots. FOGL say that from satellite they see crude oil slicks. Are there any such indicators in the North Falkland Basin?
ID: Yes. We see those as well. We shot 3D seismic so we got very good control on our prospects. As I say, we have identified seven prospects, which we are ready to drill. Some of those do have flat spots and some of them do have vent gas chimneys as well. We have drilled before and we have got a very good idea what the geology is.
The reason we like the North Falkland Basin so much is the source rock which you mentioned. It is a world class source rock. It’s 1,000 metres thick and everybody who looks at it have come up with estimates of large quantities. We have developed a model where we think the oil has accumulated on the margins of the Basin in these deltas, which we have identified. And, those are the features we are hoping to drill in the next drilling campaign.
FINN: The price of oil dropped to $61.32 yesterday. If the price drops significantly, at which point would a drilling programme here become unviable? That price has risen since 1998, when it hovered around $14.00 per barrel.
ID: The economics we did last year suggested that at $30.00 oil and 35Million barrels recoverable would be economic. The fiscal regime is very similar to the North Sea. We would apply very similar drilling techniques in those sort of developments – offshore developments would be the sort of thing we’d have in mind so we based all our economics on $25.00 - $30.00 oil. At $60.00 obviously it looks a lot more attractive.
FINN: Compared with the North Sea, how large is the area you are planning to drill?
ID: The fields we are looking at are similar potentially. They are very large fields. The first prospect we will drill, Liz, has got something like 700 to 900Million barrels of oil recoverable, which would be a very large field. So, we have a range of prospects. Liz is the largest but we have other prospects as well.
We see the 3D seismic but until we drill, we don’t know whether there is oil there. We have done all we can and now we are ready to drill and we are frustrated that we can’t get a rig. We are doing everything we can and will resume drilling as soon as possible.
We are here to do the planning, getting everything in place – all our ducks in a row so that when we do get a rig, we are ready to drill as quickly as possible. Preparing the Environmental Impact Assessment is just part of that process.
FINN: Finally, how are you going to let people know about the EIA and your proposed drilling programme?
ID: We intend to have a public meeting at the end of January, early February and we will detail the operational plans, all the mitigation efforts we will be putting in place and having an absolute minimum environmental footprint in the area.