Desire flattened by new Falklands failure

6th Dec 2010 07:35

The drilling programme of North Falklands oil explorer Desire Petroleum continues to frustrate, as the company has plugged and abandoned the 14/15-2 Rachel North well.Hopes, raised last week when the company said it had found oil at the prospect, have been dashed as subsequent sampling from the main interval located by the drilling showed the hydrocarbons are residual and that the mobile fluid is water.Formation pressures and sampling confirm the presence of good reservoir quality in the upper sands, and a deeper target is still interpreted to be oil bearing, but the interval is thin and reservoir quality is poor, said the company, which also failed to find any of the black stuff at its 14/15-1 well in October.But in an attempt to keep up the chins of expectant shareholders, Desire noted its drilling programme in the Rachel area has identified five fan systems of varying areal extent and reservoir properties, and good reservoir development has been recorded in a number of them.All of these fans will now be remapped incorporating the data from the wells to identify areas where better quality reservoir can be expected and stratigraphic traps developed. As these fans can only be mapped on 3D seismic, final mapping will therefore need to await the new 3D data acquisition, which is expected to begin shortly.And broker Westhouse remains relatively upbeat despite the "dramatic turn of events", though it's slashed its price target for Desire from 142p to 96p. The shares lost over half their value at on stage Monday, down to around 70p, but Westhouse sticks with its "accumulate" recommendation.After completion of the Rachel North well the rig will move to drill the Dawn/Jacinta prospect in Tranche I in which Desire has a 100% interest (Rockhopper has a 7.5% interest in the 1415-2 Rachel North well). This prospect is independent of Rachel and is targeting sands at a number of levels and will explore the prospectivity on the southern margin of the basin immediately up-dip from the main oil source rock.After the Dawn/Jacinta well, Desire is likely to drill another well at a location as yet still to be decided but the forward drilling schedule is still to be finalised.The company's cash balances total around £75m and will enable the company to drill the Dawn/Jacinta well, an additional well and to cover its 3D seismic costs.