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

Good response and line drawn!
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no prob .... :-))

So are you still flying then avsec?..lol

Oriel brokers note

10 May 2010
Oil & Gas

Desire Petroleum
Implications of Sea Lion

Summary
Last week Rockhopper Exploration announced that it made an oil discovery with the Sea Lion exploration well. Whilst Desire does not hold an interest in Sea Lion, the well result appears to help de-risk three prospects on Desires acreage and makes the chance of success identified in the CPR appear to be much more realistic. Given Desire looks funded for 4-5 further wells which we estimate will target prospects worth 153p/sh on a risked basis (1400p/sh unrisked) we retain our BUY recommendation.

Sea Lion analogues
The most obvious Sea Lion analogue is Rachel, which we estimate is worth 56p/sh on a risked basis (assuming the 15% CoS identified in the CPR). Rachel now appears likely to be on Desires drilling programme and could be worth 373p/sh if successful. The Anna prospect also appears to be analogous to Sea Lion, but was not assessed in Desires CPR.
Ninky also appears lower risk following Sea Lion as it is also a Barremian prospect that could contain 94mmb on a P50 basis across four intervals. The CPR estimates the CoS at 27% implying a risked value of 36p/sh (146p/sh). Ninky looks lower risk as it is a structural prospect.

Other likely firm wells
We also expect wells on the Alpha and Ann prospects, where the wells are carried by Arcadia. The CPR estimates that Alpha could contain 1104mmb with a 6%, worth 33p/sh risked (or 557p/sh unrisked) net to Desire. Alpha is seen as very high risk as it is located away from the proven source, but it is supported by a very clear amplitude anomaly that switches off at the structural spill point. There are two targets at Ann
which combined could hold 96mmb with a 16% CoS, worth 15p/sh risked (or 93p/sh unrisked).

Wells in the Southern part of the basin?
The final well may target one of the prospects in the Southern part of the North Basin, although the final prospect selection is likely to be driven by the success or failure of Rockhoppers Ernest prospect which will be drilled ahead of Desires next well. It is currently unclear if an active source is present in the Southern part of the basin, although the wet gas encountered in the deeper section of Liz does give some encouragement. These prospects, Kate, Ruth and Barbara, were not assessed in the CPR, but we assume they are c150mmb with a 5% CoS, worth 13p/sh risked
(252p/sh unrisked). Depending on the results of Ernest the CoS may improve considerably.

Michael Savage writing in yesterdays FT that DES was a "strong sell" perhaps led to a little selling pressure friday/ a bad day for oilees generally ..On occassion Financial journalists are the rampers/ derampers of the worst kind ; and this is one of those occassions. - But on this occassion you have to question this very integrity of the FT for allowing such ignorant partisan advice at such a critical time in the companys corporate history when in a few months it sould be worth 500p+ ,,,,,im not saying it for sure but to classify it as a strong sell now seems inane-unless he believes to take a strike an improved position at a later date ........................As regards recent momentum l now wish rather than banking 35k id sold the neccassay percentage percenage to allow me a free ride ......

TFC, DES is probably "fair value" now are around 75p, so at the the present price.. well.....

The one to buy is RKH of course, buy the ones with oil, speculate and play on the ones still looking (FOGL / DES)

Simple really.

i was out all of yesterday, but having called in a couple of times, i had the impression that both DES and RKH stood up very well until, as far as i can tell, very late in the day, when everything seemingly collapsed in a heap

with the w/e ahead and good profits already made, a pullback in general as well as in particular was always strongly on the cards
however, i have noticed over the last few days that the sell book was consistently double the buy, which did not exactly gladden the heart

The action will switch to FOGL shortly.....in fact most people are forgetting that elsewhere in the world, things could be hotting up for a couple of big oil or gas strikes !....

hence still worth keeping your eye on the likes of AFR and TLW ..... more speculatively, GPX has been in the doldrums for a while and of course XEL should be a better bet still

Check out SQZ....on home ground and there is always a risky punt on SEY....I'm still holding and that could imitate GKP !...or crash...

SQZ i have never looked at before
still would prefer XEL for safe home territory with high chance of success in the imminent future - i.e. well before year end

not a time to start risking new money in the markets i feel

Check it out...2 very high impact wells at no cost to the company...the first one just spudded off Blackpool...yes Blackpool....the other in the north sea with Premier oil.

For me AEX more exciting and worth a punt at current undervalued price

Retracement is taking place and after today's news for RKH is looking more deeper than it should be

http://en.mercopress.com/2010/05/20/uk-rejects-argentine-decision-regarding-falklands-shipping

UK rejects Argentine decision regarding Falklands shipping

http://www.bgs.ac.uk/falklands-oil/download/news.pdf

Falkland Islands Government
Department of Mineral Resources
Newsletter May

One thing we are going to need is some new maps, the others at the top must be a little out of date....with some of the wells indicated would be nice....cannot see DES drilling before October at the earliest...perhaps even as late as November which is a shame...

For Immediate Release
8 June 2010
Desire Petroleum
'Desire' or 'The Company'
AGM Statement
Result of AGM

Rachel Prospect Next to be Drilled


Update on Liz well results


Desire Petroleum plc (AIM:DES) the exploration company focusing on the North Falkland Basin is pleased to announce that, at the Annual General Meeting of the Company held today, all resolutions were passed.

Desire is very encouraged by the two wells of the current North Falkland Basin campaign drilled to date, with Liz (Desire operated) resulting in the discovery of gas and gas condensate and Sea Lion (Rockhopper operated) resulting in an oil discovery. Both of these wells have yielded much new information leading to a much greater understanding of the hydrocarbon potential of the North Falkland Basin. A great deal of work is now underway analysing all these new data to identify the prime targets for drilling later in the campaign. These wells represent a milestone in the North Falkland Basin exploration proving that hydrocarbons (oil and gas) have been generated and trapped.

The Sea Lion discovery is very exciting, discovering oil in a good quality sandstone reservoir. This has significantly de-risked oil exploration, particularly on the eastern flank of the basin where Desire has a strong acreage position. Desire has identified a number of potential sandstone fans of the same play type as Sea Lion including the Rachel, Ninky and Anna prospects. The Competent Persons Report produced for Desire by Senergy (UK) Limited in October last year shows gross mean unrisked prospective recoverable resources of 318 MMbo and 122 MMbo for the Rachel and Ninky prospects respectively. It is now Desire's intention to drill the Rachel prospect as its next well, subject to all the necessary approvals, when the rig returns to Desire later in the year. Extensive studies are now being carried out on the 3D seismic data, mapping the distribution of potential sandstone fans on the eastern flank, and further drilling in this area is likely early in the campaign.

The Liz well, which was drilled on the western flank of the basin discovered gas in two zones and analysis of the samples has confirmed the lower zone as dry gas (high methane and low liquid content) and the upper zone as gas condensate with a condensate/gas ratio of 95 barrels/MMscf and condensate of 49.5 API. Work is now concentrating on mapping the size of these accumulations and obtaining a better understanding of the reservoir quality. Given the complexity of this work, which involves seismic re-processing and modelling, it will take a number of months to complete. The results of the oil indications in the Liz and Beth fans are also being followed up to determine if better quality sandstone reservoir may be present updip. Only when all this work is finished will it be possible to decide on how best to proceed with the evaluation of this area.

The technical presentation given at the Annual General Meeting is available on the Company's website: www.desireplc.co.uk

AGM PRESENTATION

Annual General Meeting June 8 2010

OK,

A bit more colour on the AGM.

They went through this presentation:

http://www.desireplc.co.uk/pdfs/AGM_final_june_2010.pdf

They went through their exploration philosophy. They explained that the acreage is large, on a par with the central graben in the North Sea. The good news is both gas and oil have been discovered already. Hydrocarbon discoveries don't come along in single fields - there are usually (always?) clusters of fields. But we are at the early stages of exploration so there is a lot of work to do and a lot of lessons to learn before they fully understand the basin.

The other good news is that the oil kitchen is mature for oil at shallower depths than they had assumed pre-drill. My interpretation of this is that it is likely that more oil has been created and expelled into the basin than they thought before.

Liz has demonstrated that the deeper sand fan is not a good reservoir. There is a permeability problem caused by cementation, although they are still working on whether they think they might be able to find areas of the fans that have better properties.
However, the shallower fans (e.g. Sea Lion) have much better reservoir characteristics. This may have implications for where they eventually drill Ann - they are now thinking about a more southerly location. Indeed the shallower (uncharged) fans they drilled through to get to Liz were ~20% porosity.

The Eastern flank is less well covered with 3-D seismic than the Western flank. So, they are considering (I take it they are actually going to do it) run more 3-D seismic over the Eastern flank (and maybe other areas) to better examine the larger number of sand entry points on the eastern side.

After the meeting, I asked why DES had chosen to drill the west first. The answer was a bit obscure, but from what I can tell there were two reasons. One, they wanted to get data about the western side, as they knew RKH were drilling the eastern side, and they were going to share data anyway. Plus, DES thought there was a "risk" on the eastern side that led them to favour the west. Bob was a bit coy on what the perceived risk was, but Sea Lion has essentially mitigated that risk, so DES are now very excited by the eastern flank. They will definitely drill Rachel next.

The deeper gas was a big surprise to them. They were not expecting over-pressured zones. And in particular, there's a 20' clay seal above the wet gas (means gas + condensate, not, repeat not, water they haven't found any water at all which is a big puzzle for them). They are surprised that such a relatively thin formation has provided the seal for the wet gas, and this may have positive implications for deeper exploration elsewhere in the acreage.

The deeper dry gas is also a bit of a puzzle, in that they described it as "volcanics" and also as sandstone. I've never heard of volcanic sandstone. So, lots of work to do evaluate what they have found.

They believe they have found 2, and possibly 3 source rocks.

They are carefully considering the well location for Rachel (see slide 19, bottom right picture). They are considering designing the well so it can target the main Rachel fan, and also be sidetracked to test the slightly deeper fans to the west. Possibly Ninky after Rachel. But afterwards, Bob was more circumspect about the drilling programme after Rachel: it could be an appraisal on Rachel, it could be Ninky, or indeed I guess if they wanted more time to evaluate the results they could use Arcadia's money to drill Ann and/or Alpha. No doubt Ernest will tell them something about the southern areas. Maybe they 3-D seismic this area in the winter (north hemisphere winter).

They are funded for 4 more wells plus the two Arcadia wells. However, the 4 more wells are perhaps a bit variable, in that if they drill a deep zone again to test the wet gas then that well would be more expensive. Similarly, if they sidetrack Rachel, that could also be more expensive than a simple vertical.

They aren't worried by Argentina at all.

They need 3-3.5tcf of gas for it to be commercial.

Overall, I think it is a matter of time before they make a discovery now. Traders may exit for a while. But that will give investors the chance to load up at bargain prices. Each to their own.

That's about it.