Desire’s shares dive after Falklands oil letdown

In marked contrast to extensive oil reserves recently found off the coast of Brazil, efforts to drill for oil in waters south of the Falkland Islands have turned up short of expectations. The failure of Desire Petroleum's exploration to find anything more than "thin intervals" of oil of "poor" quality triggered a 50 per cent decline in the firm's share price yesterday.

While Desire is the first of four British firms to report on potential sites around the disputed territory, the finding is a repetition of those made 12 years ago when several companies, including Shell, drilled exploratory wells but could not come up with enough oil or gas to warrant commercial exploitation.

The disappointing findings run counter to earlier scientific reports cited by Desire that pointed to the region holding recoverable oil in excess of 3.5 billion barrels and natural gas of more than 9 trillion cubic feet - reserves making it potentially the largest oil field outside Saudi Arabia.

In 2007, Desire told the BBC: "It could make the Falkland Islanders the richest people in the world per head of capita, much more so than in places like Dubai."

So it's potentially a huge letdown. But oil field specialists caution against reading too much into Desire's disappointing announcement. "The market may have been looking for seagull-scorching test results [but] it should be borne in mind that this is the first of a potential six-well programme," said Alan Sinclair, an analyst at Seymour Pierce.

The Argentinian government has yet to comment on Desire's findings. If the British firms continue to come up empty-handed it may be forced to withdraw its furious condemnation of the exploration effort last month when it threatened to take "adequate measures" to stop oil exploration in the waters around the islands and sought support from Latin American countries who have broadly offered it.

As The First Post reported earlier this month, Venezuelan president Hugo Chavez was particularly vocal, saying: "Queen of England I'm talking to you. Queen of England, the times of empires are over, didn't you hear? Give the Falklands back to the Argentine people, Queen of England... It is no longer 1982. If Argentina is attacked you can bet on it you will not be alone like it was before."

However, there seems to be little public appetite in Argentina for renewed conflict with Britain - that is, until or unless energy reserves worth fighting over are discovered. It may be best for both countries if they are not. ·