Falkland oil investment opportunities

What Gordon Brown defines as ‘sensible discussions’ is, I guess, just short of taking his opposite number by the lapels and hurling him through the window of Number 10. ‘Sensible discussions’, Gordon tells us, is all that is required to settle the row over the sovereignty of the Falklands.

This matter has become the focal point of the UK stock market and global oil industry.

Last week I was away in Spain. By the way, even the up-market La Manga resort suffers with empty shop units and property agents waiting for the phone to ring. Arriving back in the UK I find that I can hardly open a newspaper without reading about the Falkland Islands. Even the panellists on the BBC’s highbrow ‘Any Questions’ were quizzed on the subject.

Back in August 2007 I alerted Red Hot Penny Shares readers to the prospects of these barren islands, where each human being is outnumbered by two hundred and fifty sheep and two hundred penguins. I described the four Falkland license holders, Falkland Oil & Gas (FOGL), Desire Petroleum (DES), Rockhopper (RKH) and Borders & Southern (BOR).

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I said that ‘patience will be required’, but ‘it is only a matter of time before oil wells are drilled in the region.’ And I concluded that ‘it is worth getting involved’ and that ‘there is a good case for spreading your investment across all four companies.’

Since then the share prices of the four have risen by between 40% and 321%, and that makes me pretty happy. But my point is not to boast. Rather, the message is that you need to get in early, long before the politicians start sounding off and the chattering classes start to chatter.

The importance of being early

Oil projects take ages to come to fruition.

The license must be sought from the relevant government and then granted. Geological surveys, the gathering of seismic data, the contracting of oil rigs and the many other essential tasks take months and years, even without the inevitable delays. So what matters is to identify a prospect that has high potential early. Get in before the crowd, before anybody else is talking about it.

And be prepared to wait, because when the action starts things move fast.

Now things are moving fast in the Falklands story.

Turnover in the shares of the key players is soaring. A year ago just two or three hundred thousand shares of Desire Petroleum changed hands each day. Yesterday it was thirteen million.

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The Ocean Guardian drilling rig has arrived and is about to drill the first of six wells. Will it be able to confirm the existence of sixty billion barrels of oil under Falkland waters? Soon some answers will start to emerge.

Share prices are rising, a sign that demand exceeds supply.

And yet for every buyer there is a seller.

Some who have got in early recall the famous stock market axiom ‘it is better to travel than to arrive.’ If you have quadrupled your original investment in Desire, nobody could blame you for taking some profit at this point. And yet I sense that if oil is indeed discovered these shares are set for one more blow-out.

It would be a shame to miss it, even if it is certain to send Argentina into a Brown-like fit of rage.

False claims from the Argies

Argentina claims sovereignty to ‘Las Malvinas’, and yet looking back through history I scarcely see why. It was an English sailor, John Davis, who first spotted the Falklands in 1592. Since then they have been fought over by the French and the Spanish, but to my knowledge they have never been in any sense Argentinian.

That nation’s claim seems to be based purely on geographical proximity. It’s a useful nationalistic rallying call at a time when the country’s government is struggling. Now Argentina has got the Caribbean nations on its side. But apart from making a lot of noise it is hard to see what it can actually do.

In any case, it should be pleased that others are spending the vast sums needed to identify any oil and gas, money that could yet prove to be entirely wasted. Better to wait for confirmation that these resources are indeed present before risking a cosy chat with Gordon Brown.

My conclusion?

The really smart players did get into the Falklands explorers some time ago.

But that is not to say that those who get in now cannot make money. But inevitably as share prices rise, the rewards are more finely balanced and Argentina’s opposition, though hardly a surprise, is an added complication. Investors here need to keep their eyes firmly on events – and be prepared to move fast.

Good investing,

Tom Bulford
For The Penny Sleuth

P.S. Over on my subscription service, Red Hot Penny Shares, we’re already on to the next great oil opportunity. We believe it could eclipse the returns seen in the Falklands, and as you can imagine, those gains will come to investors who act now!

Smart investors: here’s the next great oil opportunity – read my report today.

Red Hot Penny Shares is a regulated product issued by Fleet Street Publications ltd. Forecasts are not a reliable indicator of future results. Commissions, fees and other charges can reduce returns from investments. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Penny shares can be relatively illiquid and hard to trade. There can be a large bid/offer spread so if you need to sell soon after you’ve bought, you might get less back than you paid. This can make them riskier than other investments. Please seek advice if necessary. 0207 633 3600.

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