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On July 16th, Borders & Southern (OTC:BDRSF) announced the results of the well being drilled on the Stebbing prospect. The upper Tertiary target was of poor quality interbedded sand and shale. Borders said the zone likely contained hydrocarbons but the company felt like the zone was not commercial. Multiple well control incidents forced Borders to set multiple casing strings. Eventually the well was down to the 6" final casing string and continued to still have pressure issues. The decision was then made to abandon drilling. We now know what the two week delay was all about. These results are a giant blow to Borders and the entire Falkland basin. BOR on the London Stock Exchange is down roughly 70%. The duster has also brought down the other Falkland explorers, most notably Falklands Oil and Gas (OTCPK:FLKOF), which is down 9%.

As an investor, technical difficulties not allowing for full exploration is one of the most frustrating things. For me at least, there is significant overhang regarding Stebbing. Obviously, the analysis was a bit off on the upper zone and couldn't reach the bottom zone. Was the analysis spot on for the bottom zone? Is there 700 million barrels of oil sitting a few hundred meters below the current hole depth? Do you sell? Do you hold? Buy more? If Darwin is not commercial, another bloodbath is coming. Hard decisions...

Where does Borders go from here? Darwin fluid analysis is upcoming and it has mentioned shooting more 3D seismic. As of now though, all eyes have switched to FOGL (FLKOF in USA) for its upcoming wells. After the Stebbing well is plugged, FOGL will begin drilling the Loligo prospect. Loligo has always been the most talked about play, mainly because of its advertised P50 size of almost 5 billion barrels and the 75% working interest FOGL has retained.

FOGL's chances of success remain unchanged in my mind. FOGL's drilling site is 200 or so miles from the Stebbing and Darwin wells. One of the only relevant pieces of information would be that hydrocarbons have been generated in the South Falkland Basin. Loligo's main risk is whether or not faulting has created pathways for deeper source rocks to charge much younger reservoirs.

Another interesting thing to note is that FOGL recently farmed out a quarter (100% WI to 75% WI) of its acreage to EDF. This has given it enough extra cash to possibly drill a third well. Assuming decent results, I believe the option for them to drill a third well is there. From Borders' annual report:

"On 5 May 2011 the company entered into a contract with Ocean Rig UDW Inc. for the provision of mobile drilling rig services using the Leiv Eiriksson drilling unit. Under the contract the company committed to drill two wells with options to drill a further three wells.

On 18 May 2011, the company signed an agreement to assign 2 of its option wells to Falkland Islands Oil and Gas Limited. "

I don't believe BOR will use the option, so there remains the possibility of a third well for FOGL. Hopefully on any sort of decent results, FOGL will want to and be able to have BOR assign it this rig slot. The rig mob and demob charges to bring a rig to the Falklands are too great not to. Perhaps if FOGL has good results on Loligo the drilling order will go Loligo, Nimrod, and Scotia.

As always, invest in these with money you can lose. As seen from Borders, a 70% loss or more is possible. I think the selloff in FOGL is a good buying opportunity as nothing has changed for FOGL.

Source: Borders & Southern's Stebbing Results Are A Blow To Falklands Exploration

Additional disclosure: Took a bath on BOR, but still long. Long FOGL as well.