US Edition Falkland Oil & Gas
28½p+¼
Questor says HOLD
FALKLAND Oil and Gas (FOGL) now represents an extremely cheap way into the oil exploration story off the islands. However, shareholders have been turned into penguin watchers for now as there will be little drilling activity for over a year.
The initial enthusiasm over the hydrocarbon potential around the Falkland Islands has been somewhat tempered after a series of discoveries of only sand and water. Falkland Oil and Gas had disappointments at two major prospects last year called Loligo and Scotia, after neither found commercially viable reserves of the black stuff.
The problem with exploring down in the Falklands is that there is only limited kit. The Leiv Eriksson drilling rig is shared among all the other explorers so, with each drilling project running for months, the waiting list is long.
Falkland Oil and Gas said it did not expect another drilling rig to float by until the final quarter of 2014. The company has now put $125m (£78m) of its cash on term deposit, out of the total of $161m cash on the balance sheet.
The interesting issue for investors is where the shares are now, having fallen sharply after the drilling failure last November.
Investors are merely paying 32p for the cash on the balance sheet, though admittedly between $70m and $80m of that cash will be required for the next round of drilling.
But oil has been discovered to the north of the islands at Rockhopper’s Sea Lion field. So, not for widows and orphans this one, but the shares are a cheap option for those who dare. Hold.