Argentina sets out laws on Falklands oil exploration

Amended hydrocarbons legislation passed by the Argentine Congress in November 2013 introduces sanctions against any company exploration for oil in and offshore of the disputed Falklands Islands without the authorization of the government of Argentina.

The law sets out judicial sentences of up to 15 years, fines that equal the price of 15 million barrels of oil. It applies to all those who engage directly or indirectly with hydrocarbon activity such as exploration, production, transportation and storage within the area that Argentina regards as its continental shelf.

The British Foreign and Commonwealth Office sent a formal protest to the Argentine Charge d'Affaires in London against the law. The protest was not accepted by Argentine deputy foreign minister, Eduardo Zuian.

Sovereignty dispute

This is the latest development in the long running discussion over the Falkland Islands between Britain and Argentina. Britain classes the islands as an Overseas Territory so they are self governing but remain under British rule. Argentina claims the islands (known in Argentina as the Malvinas) belong to Argentina and officials have called on the UK to have talks over their sovereignty. In early 2013, 99.8 percent of Falkland Islanders voted in a referendum to remain under British rule.

Exploration continues

Four oil companies are currently exploring offshore of the Falkland Islands. London-based Rockhopper Exploration found the first oil in 2010 – Sea Lion containing about 350 million barrels in place - in the northern Falklands Basin. In September 2013, the company signed a farm-out agreement with London-based Falklands Oil and Gas Limited (FOGL) that has acreage in the southern Falklands Basin, and Premier Oil, another London-based oil exploration company. For its part, FOGL took over the licences held in the North Falklands Basin by London-based Desire Petroleum. London-based oil company Borders and Southern is exploring in Eastern Falklands Basin and is planning to drill a second exploration well. The company's first well in 2011 discovered some traces of gas.

Investor interest

There is continuing interest in British companies' exploration programmes. Premier Oil raised £150 million with a December 2013 bond issue. CEO Simon Lockett says the bond will help the company to diversify its sources of debt funding.

For its part, Rockhopper Exploration has been concerned about its capital gains tax liability to the Falklands Islands Government (FIG) following its farm out to Premier Oil. The company reached an agreement with FIG to pay US$146 million in capital gains tax over 2014 in two tranches. Company CEO Sam Moody commented that Rockhopper is now able to drive forward its Sea Lion discovery development.