Desire shares plunge as it fails to find oil

By This Is Money
Updated: 07:36 EDT, 30 December 2010

Furious investors dumped their shares in oil explorer Desire Petroleum after the company failed to hit oil on its Falkland Islands prospects for the second time in a month.

Share volatility: Trading has been heavy in Falklands oil explorers

Shares tumbled nearly 30% to a seven month low of 42.5p as more than 12m changed hands.

Oil analyst Dougie Youngson, of Arbuthnot Securities, said: 'If Desire keeps coming up with nothing, no one will want to give them any more money and if they keep hitting dry wells they will lose some credibility.' He reckons that when Desire entered the region they would have drilled their best prospects first, which makes future discoveries less likely.

He added: 'I'm not optimistic that they will find anything and they don't have a Plan B.'

The oil firm announced yesterday that its 1,313 metre-deep Jacinta prospect showed 'that no hydrocarbons have been found'. Desire will continue drilling to 1,670 metres to its deeper Dawn prospect.

The update follows a similar failure at the beginning of the month. On December 3, Desire said it had found oil on its Rachel North prospect, sending shares up 30%, only to announce 96 hours later that the oil had actually turned out to be water. This led to its shares crashing 48% and the AIM stock market considering a possible investigation.

Since a recent spate of exploration in the Falklands region began in March this year, the results have been underwhelming.

The four explorers - Rockhopper, Desire, Falklands Oil and Borders and Southern - have found just 200m barrels of oil between them.

Analysts have suggested there needs to be 2bn barrels discovered to make the area commercially viable. But investors are expected to continue trading heavily in the companies because, as Youngson explained: 'People have emotive feelings about the Falklands, thinking back to the war, and feel very patriotic.' He added that the majority of investors are individuals, rather than institutional investors, which would explain the share price volatility.

Earlier this month secret documents published by WikiLeaks revealed ExxonMobil chairman Brad Corson told US officials he did not believe the new frontier was profitable.