Falkland oil and gas share price

In the past few years, we have seen a wonderful increase in investment in oil and gas. A main reason for this can be the tragic situation in the share markets all over the world, which has forced lots of investors, to look out for Option Avenue of investments. As it is, oil and gas investment needs a keen sense of decision on the part of the investor in formative what oil and gas stocks he must invest in.

Shares in Falkland Oil & Gas (FOGL) are always low, having plunged underneath their 2004 listing value of 40p a share.

This followed information that its newest well, Scotia, had located a large amount of gas but that the reservoir quality was deprived and it was probable to be uncommercial.

On the other hand, on the positive side, the drilling has showed the presence of hydrocarbons in the geology inside FOGL’s licence area and will help out planning the next seismic study ahead of likely drilling in 2014.

FOGL’s South Atlantic licence area is very big – one third the range of the North Sea – and this have involved heavyweight partners, like US group Noble Energy and Italy’s Edison.

Further well drilled this year moreover found uncommercial gas. There is no sign of the hoped-for billion or so barrels of oil. This go after a slump in its shares in July 2010 after its Toroa well confirmed to be dry.

FOGL is completely funded to drill 3 more wells even after spending the predictable $35m (£21.9m) on seismic studies in 2013.

There is absolutely oil in the locale. Rockhopper has made important discoveries and Premier Oil has been farm in to assist with the next stage of growth of Rockhopper’s discovery.

However, oil will not be simple to take out, given the climate challenges in the South Atlantic and the depth beneath the sea, which is about 3km.

The act of FOGL highlights the danger of investing in explorers that don’t have revenues from production to offer cash flow to invest in its drilling operation.

Cash burn can be extremely high and such companies frequently have to repeatedly place shares to increase funds to keep drilling – especially following a series of “dusters” or dry wells.

FOGL has increased £80.5m in placing over the last two years alone compared with its present market capitalization of about £95m. That’s why Quest or rarely suggested pure exploration plays.

In August present year, Noble Energy farm into FOGL’s licence. This followed a same deal with Italian oil group Edison in this year June.

Each of these companies will be part-funding drilling and extra exploration activity. Noble alone is predicted to invest $180m to $230m in costs for drilling and seismic study over the next 3 years.

FOGL at present has about $220m of money, worth 43p per share. This is superior to the group’s market price which means any future discovery is cost “for free”. However, FOGL can burn through this money relatively speedily. While there is an opportunity that FOGL will discover a commercial discovery, private investors should keep away as the danger to capital is very high.