The search for oil and gas could lead to jail for company executives operating in the disputed Falkland Islands.
The Argentinian and British governments have been wrestling over this territory about 563 km (350 miles) offshore Argentina in the South Atlantic Ocean for about 200 years. The dispute led to war in 1982. But the potential for hydrocarbon finds has not kept some oil and gas companies away, despite the possibility such territorial disputes can jeopardize operations and derail E&P plans on which millions of dollars are spent.
The UK’s The Guardian recently reported that the Argentinian government has passed laws that could impose 15-year jail sentences on British companies drilling for oil offshore the Falklands and has distributed warning letters. Companies exploring for oil on the islands include UK-based Premier Oil, Rockhopper Exploration, and Falklands Oil and Gas Ltd. (FOGL).
Citing a statement by the Argentinian embassy in London, the media outlet reported the prison sentences are just one of the penalties for doing business there. Those who break the law could be smacked with fines equivalent to the value of 1.5 MMbbl of oil and stripped of equipment and any hydrocarbons extracted. They also could be banned from operating in Argentina.
“A spokesman for the embassy confirmed that any oil executive connected with Falklands drilling would be arrested if they set foot in Argentina,” The Guardian reported. But “the embassy official admitted there was little that could be done to those who stayed away from Argentina.”
News of these administrative, civil, and criminal penalties is yet another reason why companies should think twice about doing business in disputed areas. One never knows when to duck to dodge the unknown that is likely to come the company’s way. Working to meet the regulations of one government is enough.
Earlier this year, Rockhopper Exploration found itself in a tax dispute concerning its assets off the Falkland Islands. Bloomberg reported that the government sent the company a capital-gains tax bill that was more than the archipelago’s gross domestic product. The amount was four times what Rockhopper had estimated.
However, the article pointed out that “the islands’ status as an autonomous territory gives Britain no claim to the windfall, despite the UK maintaining 1,200 military personnel in the British Falklands garrison.”
These moves create aboveground instability for investors and negate what could be positives for not only the companies drilling but also the islands’ residents.
Despite the shaky environment, some companies are still chasing hydrocarbons offshore the Falklands.
Rockhopper Exploration holds 40% interests in two production licenses and will gain stakes in two more licenses once its farm-in deal with FOGL is complete. Under the terms of the agreement with FOGL, its share of costs for an exploration well on the Isobel/Elaine prospect (PL004a) and an exploration well on the Jayne East prospect (PL004c) will be carried by Rockhopper and Premier, a news release said. Rockhopper estimates these wells will target Pmean gross STOIIP of 1,078 MMbbl and 289 MMbbl respectively.
Premier Oil is pushing forward as operator with plans for the Sea Lion discovery after farming in for 60% of Rockhopper’s license interest. The project is expected to commercialize 394 MMboe about 200 km (124 miles) north of the Falkland Islands in 450 m (1,476 ft) of water, Premier said on its website.
“Detailed planning is ongoing in respect of the development drilling and production facilities design and sourcing has commenced,” Premier said. “Formal concept selection is planned for the end of 2013 ahead of project sanction at the end of 2014. Once onstream, the field is expected to reach a gross production plateau rate of 80 bo/d to 85,000 bo/d.”
Apparently, these companies believe operating in this area is a risk worth taking. The threat of jail time gives reason to rethink that.
Contact the author, Velda Addison, at firstname.lastname@example.org.