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

or give up and go home....

for myself, i have managed to tame my greed and sold 80% of my holding, probably at a small profit overall .... this leaves me with a good enough base if significant oil is found, and no serious damage even if a duster

i must confess i do find DES's lack of performance rather unsettling, based on the fact that there are usually some heavy hitters with far more inside knowledge that any of us

I agree with cynic, I have held DES shares on and off since 2001, I sold out at 103 leaving a small amount to ride the rollercoaster.

That's the difference between the 'older, wiser & comfortable' investors & the 'young, impetuous & cash strapped investors'. For the latter, an oil strike would boost the cashflow big time.

EDIT: On the subject of news, the consensus of opinion on numerous other BB's (of varying degrees of reliability) seem to be that the results of the first drill were generally known last week (not specific details), but that HMG for a number of reasons (both domestic & international) have persuaded DES to delay releasing accurate data until after testing of core samples, which are on a RAF aircraft to the U.K. at present. So probable RNS mid to late next week. It would seem that, in return for a U.K military presence paid for by the U.K. tax payer, DES are currently understandably happy to dance to HMG tune.

one can also be older and cash-strapped through self-inflicted stupidity

not sure which catagory i come in.....

does divorce come into it at some level.....that can certainly cash strap a good man.....and not just the stupid ones...still being in DES means a better chance of recovery......

http://www.fool.co.uk/news/investing/investing-strategy/2010/03/19/drilling-in-the-falkland-islands.aspx

Worth a read!!!

looks like DES shares your sentiment cynic, going down. Along with RKH..

as DES does, so will RKH

News next week....

where does risk/reward tip in favour of buying? ...... 90p doesn't look far off the mark, though one might not see that level today or even before result is known

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3ADES.L&it=le&action=detail&id=6105037
Good post from Videodawn on iii

Proselenes wrote on the RKH thread as below, but i feel it has more relevance here ....
The COS on each well is low, so the odds favour a failure, so there is tremendous shorting going on on all Falklands stocks.
However, for those holding, should Desire strike oil the rush to close shorts will create one massive price spike as shorters trying to close and also new investors buying all chase the stock price way upwards.
The overselling will create a low price for now, but shorts have to close at some time, and in the event that DES stike oil, you watch the rocket explode.

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cynic comments .....
though assuredly short positions have to be closed at some time, there is not necessarily a time limit in which it has to be done ..... further, if the closing of these is done voluntarily and not because of a bear squeeze, then the effect on sp may not even register significantly.

that said, and i confess i vacillate appallingly on this, much of the weakness over recent days is quite likely to be down a to a lack of buyers and (very) short term positions being closed due to sp really not performing as might have been expected - i.e. surging in the run up to the result rns

is the result rns late?
arguably so, which does not generate confidence in the result

when will the result rns emerge?
indications are now by friday 26th (after hours?!) or perhaps as late as wednesday 31st

what is my guess as to its content?
inconclusive - neither a duster nor the hoped-for pot of gold, but rather "further investigation from additional wells required"

worth a gamble next week?
depends on your pain and risk threshold!

The result of the first well is due within days...

Desire and Rockhopper operate in the North Falkland Basin, Falklands Oil & Gas (FOGL) and Borders are active south of the islands.

The Ocean Guardian, the mid-range rig that started drilling last month is primarily working in the north for Desire and Rockhopper, although FOGL have one shallow-water target it can drill. FOGL's remaining targets and Borders' will need a top-end rig which they are hopefully going to contract in October.

Drilling programme
The Ocean Guardian has been booked for four wells with options for six more, I list the current plan below but it is subject to change depending on the results of the early wells.

The numbers come from either the Senergy report for Desire or the RPS report for Rockhopper (and both in the case of Liz), plus the FOGL placing announcement and my guesstimate of risking for Toroa. The two consultant reports go into a lot of detail about the prospects and are well worth reading if you're into that kind of thing.

Target Licence DES RKH FOGL Risk Size
(mmboe) Drilling
Liz C 92.5% 7.5% 17% (18%) 281 (358) 22 Feb 10
Beth 92.5% 7.5% - 9% 179 22 Feb 10
Sea Lion PLO32 - 100% - 23% 170 March
Toroa 51/61/62 - 49% 15%? 1,700 April
Ann C-Ann 57.5% 7.5% - 11% 145 June
Ernest PLO24N - 100% - 23% 156 July
Ninky C/D 92.5% 7.5% - 27% 94 August
Jacinta I 100% - 6% 546 September
Dawn 100% - 8% 97 September
Rachel D 92.5% 7.5% - 15% 249 October
Johnson PLO32 - 100% - 10% 260 November

I can't emphasise enough how sceptical you should be of any numbers relating to prospect size and chances of success, no matter how exact they appear. They are only as good as the data that goes into the computer models, and in this case that means a lot of guesswork. As such it's a waste of effort getting too complicated with valuation models, the underlying numbers could change by a factor of 2 or 3 after the first drill results.

This uncertainty is why I've quoted the prospect sizes as the P50 "best guess" recoverable volume, it just seems more appropriate than using the mean recoverables which can get distorted by uncertainty about the upper boundary of prospect size.

I'll talk more about how reserve numbers work in future articles so don't worry about jargon terms like P50 and P90, I just mention it now for anyone wondering why my numbers are so much smaller than the mean prospect sizes quoted elsewhere.

Chances of success
The chance of success (CoS) is something else to discuss in a later article, but it's worth noting that RPS uses a basic geological CoS, the chance of hydrocarbons flowing to the surface, whereas Senergy is more demanding in requiring hydrocarbons to surface and the presence of at least the P90 resource (around 15-20% of the P50 volume listed above).

This will inflate the CoS for Rockhopper-only prospects relative to targets controlled by Desire. As you can see from Liz (18% versus 17%) it may not be a huge factor but worth noting.

Looking at the table, the consultants are giving odds of 6/1 against most of the prospects in the North Basin. I'd guess that using the same methods they'd come up with odds of 1 in 6 for the first few FOGL prospects and 1 in 10 or worse for Borders'.

It's worth noting that in the past Desire have (very optimistically in my opinion) quoted a 50% chance of Ann containing hydrocarbons. Rockhopper has, with more justification, put Ernest at over 40% and FOGL suggested that it would not have got BHP Billiton (LSE: BLT) as a partner if their odds were less than 33%.

FOGL and Rockhopper can be more optimistic because most of their initial exploration targets give anomalies on an electromagnetic (CSEM) survey performed by Offshore Hydrocarbon Mapping (LSE: OHM).

OHM claims that CSEM has a very high success rate in identifying subsurface accumulations of hydrocarbons. This is less helpful in the North Basin, where we already know that there's lots of hydrocarbon about, but would be very useful in the undrilled South Basin. Unfortunately CSEM doesn't tell you whether the reservoir will allow the hydrocarbons to flow, which could be the main problem in the North Basin.

Of course, the geological CoS is of little interest to long-term investors. They don't care about finding oil in itself, exciting though that may be in the short term. What they are looking for is oil that can be produced commercially.

Senergy reckons that 56 million barrels of recoverable oil would break even in the North Basin at $50/bbl oil, so it would get developed on the assumption of $60-65/bbl oil.

Thus the commercial chance of success requires you to think about the chances of having at least that kind of volume of oil in a prospect, not just whether oil can flow to surface. It's not much of a problem for the big prospects like Liz and Jacinta, but there's a definite possibility that the likes of Ninky and Beth might not be commercial as independent oil projects.

Gas
It gets worse if the prospects for gas, since there's no easy way to get gas to market. It would require either a pipeline to Tierra del Fuego or a plant to make liquiefied natural gas (LNG). The huge expense of these options would only be justified by a big resource, 5-8tcf for a full-scale LNG plant -- say 1 billion barrels of oil equivalent.

There's a real risk that Desire and Rockhopper could find a lot of hydrocarbons, but it's all gas and they don't have enough of it for commercialisation. Certainly there's lots of gas-related structures on the seismic of both basins and the only booked resource is gas in the Johnson structure. I'm particularly worried about the prospects relying on a deep (Jurassic) source -- Dawn and Ernest.

Only Jacinta/Alpha could support a LNG plant on its own in the North Basin, maybe Johnson or Liz if they were brim full, but otherwise any gas discoveries would be worthless until there was enough of them to justify building export infrastructure.

On top of that, gas would only have half the value of oil. FOGL's prospects are big enough to justify substantial infrastructure investments if just one of them holds gas, Borders would probably need multiple gas finds.

Deepwater campaign
There are only 35 rigs in the world capable of drilling in the 1000m-plus water depths of the South Falkland Basin, and they are all busy in places like Brazil, Angola and the Gulf of Mexico. FOGL seem to be aiming to get a deepwater rig in October or so, but these things are never predictable. Its licence requires a well by the end of 2010, but that should be flexible.

I suspect FOGL will remain vague about its plans until they have studied the data from the Toroa well, at the moment it's talking about one definite deepwater well with the option for more if things go well. Its most likely target is the 3 billion barrel Loligo prospect.

Borders have the cash to drill three wells, at the moment they're talking about one well each on Darwin (300mmbbl recoverables) and Stebbing (710mmbbl) plus one option on an appraisal well.

I am negative about the prospects.

Chart very bearish, seemingly indicating the first well will be a failure (which is a bit of a bugger as I'm long and hoping for a miracle!).

I have done a rough schedule. Provided things went roughly to plan they have found something to test and have spent time running 7" liner and doing DST. Certainly means hydrocarbons have been found IMO. News should be this week of how testing went.





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The lack of a P&A RNS on the 15th March is also why suddenly the price spiked up, as those with extensive shorts had to reduce their risk level and close some of them. Certainly at this stage there is hydro's and so the COS is much higher, therefore greatly increasing the risk on those with short positions, and reducing risk for those with long positions.