LONDON (ShareCast) - Falkland Oil and Gas (FOGL), one of the firms hoping to discover substantial oil resources around the Falkland Islands, saw its share price sink after placing shares at a steep discount.

The company has raised £48.5m through the placing of 112.8m shares at 43p per share, more than 7p below the mid-market closing price on the day before the announcement.

The proceeds will fund an enhanced drilling programme, on which the firm is so keen to get cracking, it could not wait around for potential farm-in partners, who would inject cash in return for a stake in FOGL's assets, to make their minds up about investing.

The company wants to dig as many holes, to as deep a depth as possible. The new funding will enable that to happen.

A rig is currently en route to the remote British territory to begin exploration for another company, Borders and Southern (B&S), which owns several blocks to the south of the islands.

After completing drilling for B&S the Leiv Eiriksson rig will start operations for FOGL, probably in May.

The company is attempting to replicate the success of Rockhopper Exploration which has discovered around 400 million barrels of recoverable oil to the north of the islands.

Commenting on the share issue FOGL’s Chief Executive, Tim Bushell, said: “We are delighted by this show of support from new and existing shareholders. The additional funds will significantly increase our flexibility over the forthcoming drilling programme.”

Westhouse Securities, a broker which specialises in resource stocks, applauded FOGL's decision to go down the fund-raising route.

"In our view, FOGL has made a good decision to raise additional funding, in order to allow maximum flexibility for siting its next two wells based on the evolving geological understanding of its prospects rather than financial constraints," the broker said.

"We have updated our risked EMV [ending market value] to 815p, to reflect the drilling of Scotia with the second well and the near-term nature of the drilling schedule. However, our target price will remain at a heavily discounted [to the EMV] 203p, to reflect the reluctance in the market to value exploration in the sector, particularly in regions such as the Falklands where potential development faces additional political challenges," Westhouse added.

Shares in the firm had dropped 6.5% by 10:00 in London.

Falkland Islands Holdings (FIH), the retail, transport and logistics services group which has a chunky holding in FOGL, has increased its stake by subscribing for 2m new FOGL shares at a cost of £0.86m.

"We are pleased to support FOGL's exploration activity in the South and East Falkland Basins by subscribing to FOGL's fund raising and to have increased our shareholding at an attractive price prior to the commencement of the drilling programme," said FIH Chairman, David Hudd.

"Shareholders in FIH now have an effective interest in 1.5 FOGL shares for every FIH share they own," Hudd revealed.


BS

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