Falklands : Caught in the Net with Rendell and Luxton
Submitted by Falkland Islands News Network (Juanita Brock) 08.05.2005 (Article Archived on 29.05.2005)
Director of Mineral Resources, Mrs. Phyl Rendell and Cllr. Stephen Luxton set the record straight about any future oil industry in the Falklands.
CAUGHT IN THE NET WITH RENDELL AND LUXTON
A Report for FIBS by Sian Ferguson (SF) 06 May 2005
Sian’s guests today are Director of Minerals and Agriculture, Phyl Rendell (PR) and Cllr. Stephen Luxton (SL), who holds the Minerals Portfolio. She asked if anyone could explain who the licence holders are for offshore oil exploring at the moment.
PR: Well we’ve got quite a number of licence holders at the moment. The ones that are best known probably are Desire Petroleum, who have got licences in the North Falkland Basin and FOGL or Falklands Oil and Gas Limited, with open door licences in the south. In addition to that we have a company called Boarders and Southern Petroleum, who were licensed last year. Their area in the south is being surveyed right now by the GSI Admiral – the vessel that people will have seen coming in and out of Stanley. Further to that, we’ve got Argos resources, who still have a licence in the North Falkland Basin and we have Talisman Energy with a licence in the North Falkland Basin.
SF: How much of the basin that can be licensed has actually been licensed to these companies?
PR: That’s rather difficult to estimate.
SL: It’s a relatively small area. It’s a proportion of the actual 150 – 200 mile zone. But in terms of the areas of interest, I think they are the main areas of interest are now licensed. The North Falkland Basin – the several licence holders in that. I think they are covering most of the juicy bits. But there is a lot of unlicensed acreage. Some of it may be of interest in the future depending on what is found by the existing license holders but other areas aren’t actually sedimentary basins. They won’t have any oil or gas potential.
PR: And, I forgot to mention Rockhopper Exploration having licences in the North Falkland Basin that were awarded last year. And, there’s a few areas just further north of the areas that are licensed that are interesting – as Stephen says, quite juice bits. That perhaps companies will be interested in later on after we get more data on the region.
SF: What’s the difference between the North Falkland Basin and the south one?
PR: Way back in 1996/97, we tried licensing both areas to spread the effort. But the companies chose to all explore in the north because the water depths are much shallower – under 500 metres – and, generally speaking the geology looked more straight forward than the south. And, met-ocean conditions, too are more straight forward in the north. It’s quite a challenge in the south with the currents and the much deeper water depth. So the effort has been focused on the north until more recently and now we are pleased to have companies looking at the south, which is completely unexplored and no wells have been drilled down there.
SF: At the moment, do you have interests from any other companies who may be wishing to explore in the south?
PR: There’s interest from companies now because oil prices are so high so there’s a number of companies enquiring. And we are handling the enquiries as and when they approach us.
SF: The open door policy that Government is now exercising – has this changed the interest you are getting from companies or not?
PR: It did change when we introduced it in 2000. It means that companies can come to us and say they would like to make an offer on an interesting area. And, they will do this amount of work for it. The other system that we worked when Desire Petroleum and Talisman and Argos got their licenses was competitive licensing, where the Government identified areas up for licenses and asked what the company would offer us. So now, we’ve given the industry the opportunity to be in the driving seat for the time being.
SF: It’s all about making it easier for your oil companies to get involved and to get interested here. At the moment, because we don’t have any working oil fields, we still are a frontier area, therefore, it’s still high risk, so it’s down to us to make it easy for companies to get involved as and when somebody actually makes a commercial find. I should say, if somebody makes a commercial find, obviously, our licensing terms are liable to change because then it will be far more interesting, actually. If there is a known working oil system here, then we may change the licensing systems so that there is more in it for the Falklands so that we can get more of the potential wealth, if you like, for the Falkland Islands Government.
PR: Following on from Stephen, it’s important for people to realise. Where we are at the moment is probably about the equivalent of the North Sea in the 1960s. We are at a very early stage. And, even the companies making quite a lot of statements at the moment about what they think the potential might be, it’s still very early days and we’ve got to get the wells drilled and actually have a commercial discovery before we can bank on anything.
SF: Have you seen the results of any of the surveys and do they look encouraging to you?
PR: Certainly the more mature area for the Falklands in the North Falkland Basin – the Desire Acreage – their data looks very interesting – and – as you know the result of that is that they plan to drill some wells up there. That’s great. They are really committed and moving forward. But the Falkland Islands Government has yet to see the data from the south that FOGL have acquired. It’s still being processed. And, once it’s completed its processing, our consultants, British Geological Survey, will get a set of that and they will do diligence on that data and advise us as to what their opinion is of it.
SF: When you award licenses to companies, is it at the sole discretion of the Falkland Islands Government or does the UK and Foreign and Commonwealth Office have some input?
SL: The FCO does have some input and ultimately the licenses have to be approved by the Secretary of State. But basically if something comes to us, which is not acceptable to us, then we have the veto over it. First of all, a license will go to the Mineral Resources Committee and then Executive Council and, if Executive Council approves this, it will then be referred to the Secretary of State for the FCO’s consent. But we effectively have the say over any applications but if we approve something it has to go on to the FCO as well.
SF: How long are these licenses actually granted to these companies?
PR: They vary. The competitive licensing terms are quite different to open door terms and there are stages through which we have to go. They have a first exploration phase and then they have to drop some acreage and then they can have another exploration phase. They vary depending on the amount of work that the company is prepared to do. If they are prepared to commit and drill wells in the first stage, we can make that 5 years in length but if not, and they are acquiring seismic only, it will be three. It’s complicated and we have that listed out for people to read on our website.
SF: if oil was found in commercial quantities down in the Islands, what sort of measures environmentally will be taken to ensure that there weren’t any spills or damage to the environment?
PR: There’s Health & Safety and Environmental measures already in place at exploration stage. (inaudible sounds like nevorlan) at a discovery and production stage. So, I think the Falkland Islands Government takes that very seriously. And, indeed, with increasing activity, and interest now, we will be reviewing that legislation and probably strengthening it. It was 5 or 6 years since it was drafted and approved. Oil companies have their own operating procedures and, of course, the last thing they want is to have a spill. But that doesn’t mean that the Government should be complacent. We have legislation in place, companies have to have oil spill contingency plans as well as national plans. In the case of drilling, companies have to produce an environmental impact assessment that has to be approved before they can proceed.
SL: I think it’s important to stress that there is a degree of nervousness here about potential environmental impacts but I think it’s important to stress that these days, to be honest, that the days of cowboy oil companies – horrible spills in other parts of the world – I think those days have gone because, to be honest, no investors these days put their money into somebody who doesn’t have a good environmental track record. It’s something they’ve got to be 110% on in the environmental front before anybody will look at funding them from the stock market. So, I don’t think there are any concerns on that front about any of the licensees. They’ve got very strong environmental programmes.
PR: Not trying to defend the actual oil industry, but most spills occur when hydrocarbons are being transported from place to place, as we saw only recently with ships and vessels. We will be looking at double hulled tankers for transportation of oil from oilfields etc. but that’s very much down the line. And, any company that were thinking of going into production will have to produce a development plan for the Falkland Islands Government, which would become a public document for public discussion and debate before they could proceed to development.
SF: So, would any companies be planning on transporting the oil via tanker from the oilrig or will the oil be coming to the Falklands for the holding stage?
PR: The production scenario in the event that there were a commercial discovery and in the event that there was a company willing enough to put in the billions of dollars required to make it commercial, the scenario is that we would have floating production vessels offshore, rather like west of Shetland, that would produce the hydrocarbons and it would all be produced and processed offshore and tankers would come alongside to the loading point where the floating production vessel was and load the hydrocarbons and take that directly away to the refinery, wherever that might be. It may be Huston or wherever. The scenario that the companies have painted to us to date is that they don’t expect hydrocarbons to come ashore at all to the Falklands. The Falklands would be really the base for getting men in and out of the area and there would be some loading and requirements from the port facility but we don’t envisage pipelines and storage tanks and certainly never refineries in the Falkland Islands.
SL: I think that’s absolutely right. For people who don’t know what they are, the floating production and storage vessels are basically an oilrig mounted on top of a tanker. You wouldn’t actually be looking at an oilrig that would be attached to the sea floor. That’s what people would normally expect. Basically this is a big tanker that’s anchored over the well-head with a rig on it that will extract the oil, hold it on the vessel and then transfer it to other tankers that will come and go and take it to the market. That’s the sort of technology that we are looking at. There just wouldn’t be a justification for bringing oil onshore in the Falklands because it would just be double handling. You would bring it here, offload it from a tanker and then put it back on a tanker and take it away again. It’s far more efficient to take it straight to the markets.
SF: And, if this did happen, how would the Falkland Islands Government prosper from the discovery of oil?
PR: The Falkland Islands Government will prosper now from exploration, probably through tax paid by companies operating offshore. Just having seismic ships operating here is good for the economy. The more activity that occurs, the more money will flow through the economy and flow into the private sector and move around, which is great. But the Falkland Islands Government probably won’t make large amounts of money until such time as royalties are being paid by oil companies that are in production. And, that is quite a long way off. Certainly, corporation tax paid by companies that are operating is even further off because of the fact that they can offset the many billions of dollars they are expending on getting to that stage against their profits. So, it’s quite a long way before the Falkland Islands Government would see large sums of money coming in to the treasury. But certainly activity in the area is good for the economy generally.
SL: It provides a lot of opportunities for local companies for support services and things as well. And, that there was quite a lot of money flowing through the economy by that means last time in the 1998 drilling round. And, the same thing would happen again in the drilling round that may occur in the early part of next year. It may happen a couple of years down the line if FOGL do some drilling. Obviously, if there is a discovery, there will be a lot of opportunities for local companies in the logistics of handling people and equipment and drilling mud – all sorts of things that they need for the industry. There will be a lot of opportunities onshore for all sorts of local businesses.
SF: How much do you think the services of Stanley would have to change to cope with that?
SL: It’s really a question of scale. I guess whatever happens next year will probably be on a similar scale to what happened in 1998. So, there will be a few people coming in and going out. And, people will see the ships coming and going. I don’t think there are any major changes planned at FIPASS or anything like that. We will be on the same sort of scale as last time. And, I would guess in a couple of years, if FOGL get things together and do some drilling, it will probably be much the same thing again. In terms of what will change if there is actually a discovery and we are actually producing oil, really depends on how much and at what speed things develop. There could be quite a lot of infrastructure on shore just for handling drill pipes and supplies for the rig and things like that – people coming and going, so there may need to be more accommodation – a camp somewhere for transiting oil workers – that sort of thing but I don’t think there’s going to be a complete change in Stanley or anything like that.
SF: We talked about offshore oil, moving on to the onshore minerals, I understand that there’s activity at Goose Green at the moment.
PR: That’s correct. Falklands Gold and Minerals Limited have set up a base at Goose Green that people are well aware of because it’s very central for their areas that they are drilling at the moment. And, Derek Reives, the manager for that project is here in Stanley and supervising the activities out there. And, it’s all going very well, considering the time scale. They’ve had a lot of equipment brought in from overseas – a couple of drilling rigs from Canada and a lab and so on to do testing on the cores they are getting out at the moment. It’s all going to plan, in spite of moving into the winter. I think they hope to keep drilling throughout the winter.
SL: I think, really, I just would like to take the opportunity to reassure people that may be still a bit nervous that once the oil bandwagon gets underway that there will be no stopping it. I think the important thing is that the Falkland Islands Government will be in control of what happens. At the end of the day, we issue the licences and we make the laws. So, if we don’t want something to happen, if we don’t want a refinery onshore, if somebody decides they want to do that, then it will be up to us to say yes or no. I think we are confident that the oil industry is a fairly big enterprise but that doesn’t mean to say that the Falkland Islands Government will get pushed around. I think the working relationship thus far has been extremely good and I don’t think people should worry that the thing will get out of control and that there will be refineries from one end of East Falkland to the other ten years down the line. It just isn’t going to happen. It’s up to us what we want and where we want it.
(100X Transcription Service)
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