Desire Petroleum

<>Desire Petroleum plc (Desire) is a UK company listed on the Alternative Investment Market (AIM) dedicated to exploring for oil and gas in the North Falkland Basin.

Desire has recently completed a 6 well exploration programme. The Liz well encountered dry gas and gas condensate at 2 separate levels while other wells recorded shows.
Together with the Rockhopper Exploration Sea Lion oil discovery in the licence to the north, these wells have provided significant encouragement for the potential of the North Falkland Basin. The oil at Sea Lion is of particular interest as this has demonstrated that oil is trapped in potentially significant quantities in a fan sandstone on the east flank of the basin. It is believed that over 50% of this east flank play fairway is on Desire operated acreage.

Desire has now completed new 3D seismic acquisition which provides coverage over the east flank play, Ann, Pam and Helen prospects. The results from fast-track processing of priority areas are provided in the 2011 CPR. A farm-out to Rockhopper has been announced. The revised equities are shown on the licence map (subject to regulatory approval and completion of the farm-in well). Desire Petroleum

Rockhopper Exploration

British Geological Survey

Argos Resources



Latest Press Realeses from Desire

Rig update!!!!

http://www.diamondoffshore.com/ourFleet/rigStatus.php

From FT chat this morning, note from Oriel:
"After several years of anticipation, Desire has finally secured a rig to undertake an
extended exploration campaign in the North Falklands basin which is expected to
commence in February. The plan is to drill a minimum of 4 wells, but the programme
is more likely to include 7-8 wells, possibly including 2 on Rockhopper's acreage.
Desire is funded through its share of the first 4 wells from existing cash resources
and farm-outs but has announced it is looking to raise cash to help fund the
additional contingent wells. Rockhopper currently has only a small amount of cash
and has highlighted that it is looking at raising cash and/or securing farm-outs to
cover its share of drilling costs. Rockhopper does not currently have access to a rig, but we expect it either to get access through Desire's optional slots or through an extension to the contract on the Ocean Guardian.

There are a large number of drill ready prospects in the North Falklands basin across
both Desire's and Rockhopper's acreage. Previous exploration in 1998 provided
evidence of a working hydrocarbon system but we still view the basin as frontier with key risks associated with reservoir quality, trapping and, in certain parts of the basin, source and migration. The majority of the targets are c100-250mmb which would be commercial even at the lower end of the range, with chances of success varying between 8-27% ahead of drilling. In total, we expect Desire to be exposed to c1900mmb of net reserve upside and Rockhopper to c330mmb based on the P50 estimates of the prospect inventory likely to be drilled.

The Falkland companies offer investors exposure to frontier exploration, and in the
event of success could yield returns measured in multiples of current share prices.
However the upside potential needs to be balanced with the significant probability
that the proposed drilling campaigns will not yield any commercial discoveries, which
we estimate to be over 50%. Balancing the downside risks with the upside potential
we highlight Desire in the North and Falklands Oil & Gas in the South as our preferred plays.
History has shown that investor interest in the region will heighten into exploration
drilling and we expect the shares of both Rockhopper and Desire to be volatile before and during the drilling programme. Whilst these shares have enjoyed a strong run since the announcement of the rig contract in early September, we will be surprised if they were not materially higher into the drilling campaign once funding issues have been clarified"

Cheers Harry here is one more,i take it with Desire and RKH presenting to the city boys is why all these brokers notes are coming out i wonder if oriel are still sticking to the price they suggested last time if oil was found.

Brokers report released today by Killik & Co

Although the share prices of both Desire Petroleum and Rockhopper Exploration are back to around the highs they made in early 2008, this time around the appreciation we have seen is based upon a degree of tangible activity, given the announcement of the procurement of a rig for use in the North Falkland Basin, and not just down to an influx of speculative money as we saw last year. This now gives short term scope for potentially company-defining news-flow, given drilling is anticipated in February 2010.

Both Desire and Rockhopper have indicated their intention to raise monies to fund the drilling programme in the south Atlantic: I have always been of the view that these prospects potentially represent Mrs Thatchers final economic legacy to the nation. Given below is oil and gas consultancy Senergys best estimate of the probability of success. You may well find those odds unappealing. It should be recalled that, whilst Tullow Oil has had unprecedented success this year, with 11 out of 12 wells hitting oil, the average hit rate for prospective wells in the broader E&P industry ranges from between 3 and 10 to 1.

However, the key point to make is that I believe our clients should have the scope to benefit from the much touted better to travel than arrive adage. In the meantime Killik is likely to have the scope to buy into these stories at a material discount to the prevailing price.

On balance we are inclined to favour the outlook for Rockhopper over Desire given that:
Rockhopper has in Sea Lion and Ernest two of the three lowest risk prospects in the entire North Falkand Basin, recognised in the CPRs and detailed in the table below.
Rockhopper also has the only block with proven live moveable oil; this was originally found by Shell and is near the proposed Sea Lion drilling area that has yet to be drilled but most of the prospect has been covered by 3D seismic.
Rockhopper also has a gas discovery to exploit: this is Johnson, a discovery made in 1998, again in the former Shell license area. The exploration update of the 22nd May 2009 revealed that RPS Energy had classified the Johnson structure as a Contingent Gas Resource with a best estimate of 1.6 Trillion Cubic Feet (Tcf). These were actually the first Contingent Resources declared in the Falkland Islands area.
Rockhopper also appears to have a share in Desires initially targeted, and therefore presumably most attractive, blocks (Liz, Ann and Ninky) whilst the converse is not true, given Sea Lion and Ernest are 100% owned by Rockhopper.
At the end of the day, who knows which company has the better acreage when they are drilling in the same basin. But if they both had a 150m barrel discovery it would be worth markedly more to Rockhopper, if only because their market cap is 68m or almost exactly one-third of Desires market cap of 212m


Background
The background to oil exploration in the Falkland Islands dates back to 1998, when Shell, Lasmo, Amerada and Lundin drilled to various depths in the North Falkland Basin (home to Desire and Rockhopper, with shallower water and in a different petroleum system to that of Borders & Southern and FOGL to the south of the island). Then, six wells were drilled and of these five had oil shows, with one well (Shell) flowing oil to the surface (27 API, a full spectrum crude) and another (also Shell) showing gas. Wells were discovered which had all of the elements in place to confirm an active petroleum system; good source rocks with traps, reservoirs and seals. The oil found here however was not classed as a discovery as no test wells were drilled; the oil price at the time (a multi-year low of just $10/barrel) made exploration of this kind uneconomic. Clearly, now at $70/barrel the proposition is completely different and highly attractive. It should also be noted that at the time Shell drilled to relatively shallow depths (as 3D seismic was not available), hence drilling was even more of an art than a science back then than it is today.

From a geological point of view, the petroleum system in the north Falkland Islands is similar to the Albertine Graben Basin in Uganda (where Tullow Oil has had unprecedented success) both in terms of size and source rock. The Ugandan basin has been heavily explored to date, and in excess of 600m barrels of contingent resources have been discovered there since 2005. The Falklands however have not been explored since 1998 and remains a frontier region for oil exploration.

The first major challenge faced by any relatively small company undertaking offshore drilling in a remote location is the cost of securing a rig, and mobilising it to the location. The added difficulty faced by companies prospecting in the Falkland Islands in this regard is political, coming from Argentina, who are putting pressure on other South American countries and therefore international players drilling in the locale (e.g. the Santos basin off the coast of Brazil) to be uncooperative. We expect vocal opposition rather than military intervention will be the extent of Argentinian opposition this time. However, this has meant that Desire have had to secure a rig from a great distance (with associated mob/demob costs for that journey). Interestingly, Rockhopper management have also mentioned this as an issue in relation to their previous attempts to secure a farm-out partner, although we believe they continue to talk with an interested party; Desire signed a farm-out agreement with Arcadia in August 2008.

The offshore rig market has been exceptionally tight of late, forcing daily rig rates outside the financial capacity for many small exploration companies part of the reason why Desire and Rockhopper were always likely to share the costs of the rig. However, with regards to the rig, recent news flow, has been positive, with the announcement in early September 2009 that Desire Petroleum had exchanged a letter of intent with an established rigger, Diamond Offshore Drilling, to secure the use of the Ocean Guardian rig, a third generation semi-submersible to undertake a four well minimum drilling campaign in the North Falklands; it is capable of operating in water depth up to 1500 ft (and a maximum drilling depth of 25,000 ft.) which is more than adequate to meet all the potential needs of operating in the North Falkland Basin, albeit inadequate for operators like Borders & Southern in the south. This rig is set to mobilise at the end of November to arrive in the south Atlantic and commence a five month drilling programme in early February 2010.

Under the terms of the rig contract with Diamond Offshore Drilling Desire, which has cash of c. $40m already, would like to raise monies to commit to drill two or three additional wells (to make four or five in total- likely to be Ann, Alpha, Liz and Dawn/Jacinta) whilst Rockhopper (which also has a 7.5% equity interest in two of Desires likely early well drills, Liz and Ann as well as a further 7.5% in a likely later drill, Ninky) would like to drill two of its own 100% ownded prospects: Sea Lion and Ernest; the costs per well are likely to be in the order of $25m.

If both companies can successfully raise money, the exploration wells can be drilled; there are many more potential wells to be drilled although if all of the wells in this five month drilling programme prove to be dry then we suspect that both businesses would struggle to secure additional equity funding to keep drilling.

If oil is found however, both the Desire and Rockhopper share prices will see significant appreciation, although to calculate the precise value of oil held in the acreage, further test wells will have to be drilled (at further cost). At this point it seems likely that both businesses would farm out parts of their shares in the assets (to fund further development of the assets), whilst reducing their equity stakes in the oil, or they will be takeover targets from medium/large E&P players. The upside potential is very considerable. A Competent Persons Report released by Desire, and conducted by industry experts Senergy, highlighted that the mean, gross, un-risked prospective recoverable resources across ten of its main prospects is over 3.0 bn barrels. Depending on the oil price assumptions and the ultimate amount of oil discovered (after being discounted back by 10%), Senergy, the CPR estimates that the NPV for acreage held by Desire ranges from $296m (at 50MMbo assuming $75 oil) to $6.2bn (assuming 400MMbo, again assuming $75 oil).

The upside potential at Rockhopper is similarly large. According to the Competent Persons Report (which assumed $80 oil), and on a P50 basis, the five wells earmarked for drilling at Rockhopper have been calculated as having an NPV of some $5.05bn, again discounted at 10% on an estimated 370 MMbo. As an aside, the directors have estimated upside on RKH acreage to be 4.3bn barrels recoverable on a P50 basis.
Prospect Desire Interest (%) Rockhopper Interest (%) P50 (MMbo) Chance of Success
Ann 57.5 7.5 89 18%
34 11%
Alpha 100 0 331 6%
Liz 100 7.5 260 17%
Dawn 100 0 97 8%
Jacinta 100 0 437 6%
Helen 100 0 57 9%
258 11%
Rachel 100 0 230 15%
Beth 100 0 166 9%
Ninky 100 7.5 29 27%
29 27%
28 27%
28 27%
Pam 100 0 73 11%
88 11%
Sea Lion 0 100 170 23%
Ernest 0 100 156 23%

RNS major placing and offer to shareholders.

"Desire Petroleum (AIM:DES), the oil and gas exploration company wholly focused on the North Basin of the Falkland Islands, is pleased to announce that it has conditionally placed 60,000,000 new ordinary shares of 1p each ("Placing Shares") at an issue price of 70p per share, thereby raising 42 million (approximately US$68 million) before expenses (the "Placing").

The Placing Shares, which have been placed predominantly with new institutional investors by Seymour Pierce Limited, will represent approximately 20.7 per cent. of the Company's Enlarged Share Capital."

this chart ain't pretty ..... take care before investing, which is not to say that there will not be a correct time .....

It looks beautiful to me. I bought them at 22p.

WHAT!! not taking profits and holding on for so long..geoffsh....cynic will not be happy.......lol...good for you.

So you have already lost 20% of the profit you had, geoffsh. The next question is, how far down will it go & where will you start to wish you had sold some to lock in profit?

21% of the share capital is quite a chunk, though it's only conditional atm. Presumably the institutions will be tied into a time clause, but this is big dilution & it's difficult to work out where the sp should level out.

It should drop to 70p now with shorting and people closing the shorts with new stock from the placing.

Great RNS yesterday and very glad to see Desire raising the extra money to drill more holes and for the Institutions to over subscribe this 3 times over is a very positive.

We need a bit more meat on the bones before understanding the full picture and look forward in reading the prospectus and getting a bit more detail I still have a gut feeling Desire still have a few more cards to play in the near future which might change the picture but are chances of striking oil have just gone up with the drilling of more prospects and testing more plays.

All the action will switch to the South Atlantic soon....not that far off now, by next spring these threads will be alive with buzzing comments.....

I doubt whether this will drop to 70p...too much potential....but this stock is quite a gamble...loads of wells to be drilled...the Desire Petroleum people must be quite confident of finding something to put so much effort into this....one thing I'm a bit concerned about is : when on earth will the Rockhopper lot get to drill their wells because by the look of it DES will drill at least 4 wells of their own and that will take ages before RKH get a look in !.

The way I understand this is that there is no lock in period for the Institutions so they can sell what shares they have bought at 70p and make a profit but have been told that demand for these shares was heavily oversubscribed and the Institutions will be buying more shares between now and the first spud date hence we are seeing some large buys going through.

Required field the last shell well was drilled in 14 days,but i can see the rig been in the Falklands for quiet a while as i think there is a lot more news to come on partners and more holes drilled.

Yes, shallow prospects...the rig will be there in my view for 2 years at least, still at the moment DES looks the better buy rather than RKH who need to raise funds...their wells at a guess will be drilled late next summer...some way off yet.

good chance to get in I would say if not already looking at cynics graph, placing at 70p oversubscribed and pvte invs bound to take up too, 83p prob resistance level for now before the excitement starts in new yr

http://www.upi.com/Science_News/Resource-Wars/2009/10/22/Falklands-oil-dream-becoming-a-reality-with-new-funding/UPI-56531256244511/

Falklands oil dream becoming a reality with new funding

STANLEY, Falkland Islands , Oct. 22 (UPI) -- The Falkland Islands' dream of becoming a major oil producer may be becoming a reality with new investment funds going into exploration amid expert analysis the British overseas territory may hold more oil than the North Sea.

Desire Petroleum, one of the oil and gas exploration companies active in the area, announced this week it has conditionally placed 60 million new ordinary shares of 16 cents each at an issue price of $1.16 per share, raising $68 million before expenses.

The company said it already had about $40 million available for investment in Falklands oil exploration and development and planned to raise more than $100 million through share offerings.

These shares were placed predominantly with new institutional investors and will be supplemented with an open offer that is expected to raise an additional $38 million.

In September Desire agreed with Diamond Offshore Drilling (UK) Ltd to start drilling the ocean bed in the North Falkland Basin. The drilling operation is scheduled to involve four wells and cost about $20 million.

With additional funds at its disposal Desire plans to increase the number of wells it will drill to look for substantial quantities of oil. Further drilling by Desire partners Arcadia Petroleum Limited and Rockhopper Exploration has already been announced.

The companies have said they want to drill as many wells as feasible in potentially viable areas to explore and exploit the area's full potential.

Drilling for oil in the ocean bed north of the Falkland Islands began about 10 years ago, and early studies showed five of the first six wells held certain promise but not on a commercial scale. Further exploration was abandoned as the crude oil price plummeted below $10 a barrel at that time and the exploration costs proved too prohibitive. Major players, including Shell, soon pulled out of the exploration program.

The Falklands government says it plans to monitor prospective and oil industry development closely to make sure the islands' transformation does not damage their environment and major tourist attractions, including penguins.

Scientists have established the rocky basins around much of the Falklands hold reserves that are at least equal to the central North Sea oil fields.

Desire estimates the areas under its prospecting may hold 5 billion to 6 billion barrels of oil.

Although the British government has refrained from comment on a potential transformation of the Falklands into an oil-rich economy, it is watchful of reactions from Argentina, which still claims sovereignty over the territory. Argentina and Britain fought a war over the islands in 1982.

I really need a drilling budget to deceide which way to vote.

with RKH having been crunched by its cash-raising share issue, DES has continued to soften, albeit to nothing like the same degree.

anyway, i draw everyone's attention to a very long article, primarily about BP, in yesterday's Sunday Times.
the nub of it was that regardless of the short term issues surrounding the price of crude, known oil reserves are being depleted far quicker than new are being found.
of course this does not necessarily mean that crude will rise - it almost certainly will over time, but it is driven by other factors - but that second tier and smaller companies with proven reserves of both quality and quantity, will become ever more tempting morsels.

as it stands, DES and others in the falklalnds basin still have to actually find the alleged multi million/billion/trillion barrels of oil said to be just sitting, merely just awaiting the drill bit ...... so, if you believe the story, then now is possibly not a bad time to buy DES, as its sp having fallen about 20% from its recent high, is just about touching the 50 dma, from which it could/should bounce

Thanks Cynic - useful analysis